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Housing Market

Housing Market

The All-American "Short Squeeze" No One Else Sees

Everyone knows the U.S. housing "recovery" has been resurrected on slippery ground. But now that we're finally about to slip – big time – no one sees it coming…

Then again, how could they?

The numbers are incredibly misleading…

According to the Commerce Department, new residential home sales in July fell a whopping 13.4% from their June sales pace. And sales in April, May, and June were all revised significantly lower.

Yet according to the National Association of Realtors, existing home sales (completed transactions that include single-family homes, townhomes, condominiums, and co-ops) increased 6.5%… to a seasonally adjusted annual rate of 5.39 million in July, from a downwardly revised 5.06 million in June.

On the surface, the divergence is confusing. But not when you look below the surface, where the real money gets made.

As you'll see (before anyone else), the housing "recovery" is just one giant "short squeeze."

And you can make a flat-out killing the moment it ends…

Housing Market

Why Millions of Americans are Still "Trapped" in Their Homes

For millions of Americans who were underwater on their mortgages, the tide is finally receding.

That's good news for the housing market, of course, and for the U.S. economy as a whole, as housing is a major engine of the economy.

Housing not only generates construction jobs, one of the hottest job sectors in the country right now, it also sparks spending on home furnishings and appliances. And as home prices increase, people feel more wealthy and tend to spend more.

The number of homeowners underwater – those who owe more on their mortgage than their home is worth – dropped in the first quarter to 25.4% percent of all mortgages, or 13 million homeowners, from 31.4 % a year earlier, real estate researcher Zillow reports.

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Politics

Fight Club: Is the Home Mortgage Interest Deduction Worth Keeping?

Garrett Baldwin: Don't Just Cut the Mortgage Deduction… Cut All Deductions and Lower Taxes


If home ownership is the American Dream… then why do we need government to subsidize it?

The home mortgage interest deduction (HMID) is a lopsided tool of economic alchemy that favors the rich, and artificially increases housing prices due to the "stimulus" it creates.

According to the Congressional Budget Office, this tax break will "cost the government" more than $1 trillion over the next decade. The HMID mostly benefits households earning $75,000 to $500,000 a year. According to the Tax Policy Center, this range of Americans earns 77% of the tax savings from the HMID.

Housing Market

Why the Housing Market Recovery is Bypassing Young Buyers – and What that Means to the Market

Think of the housing market as a ladder with first-time homebuyers at the bottom and homeowners on the upper rungs, with homes priced higher as you proceed upward.

The first-time homebuyers make it possible for those in the lower-priced homes to sell and move up to costlier homes, which in turn enables the sellers of those homes to move up to costlier homes – and so on.

But amid the housing market recovery – sales of new and existing homes are up and prices have been rising – many first-time buyers are being shut out of the market.

And that has far-reaching implications for the market as a whole, given the role those first-timers play in creating demand from the bottom of the ladder.

"They're the first rung of the ladder," Douglas Duncan, senior vice president and chief economist at Fannie Mae, told Money Morning.

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Housing Market

Here's How Much Higher Mortgage Rates Will Raise Your Monthly Payments

Where will higher mortgage rates raise monthly mortgage payments most?

These three charts from the real estate site Zillow.com depict how higher mortgage rates will affect monthly mortgage payments in different markets throughout the United States.

The charts are based on the percentage of income homeowners spend on their monthly payments, with a pre-housing bubble baseline of 20% of median household income.

The first chart shows how much more expensive than historical norms monthly payments will become in six of the priciest metropolitan areas when mortgage rates climb to 5%, assuming homes appreciate in line with Zillow projections.

Monthly payments in the San Jose metro area will increase the most (22% over the baseline) followed by Los Angeles (19%), San Diego (14%), San Francisco (11%), Portland, OR (7%) and Denver (1%).

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Housing Market

How Higher Mortgage Rates Will Dent Housing's Recovery

How much do higher mortgage rates reduce home sales?

That, of course, depends on how much rates rise and whom you ask. But there's no doubt higher mortgage rates hurt sales, experts say.

Interest rates have been climbing since May. Rates on 30-year, fixed-rate mortgages averaged 4.37% for the week ending July 18, Freddie Mac's weekly survey of conforming mortgage rates said. That's up more than a percentage point from early May.

And existing home sales fell 1.2% in June, to a seasonally adjusted annual rate of 5.08 million, from 5.14 million in May (but still 15.2% higher than in June 2012), the National Association of Realtors said Monday.

Lawrence Yun, the NAR's chief economist, told Money Morning he expects interest rates to hit 5% to 5.5% within a year. And while he foresees existing home sales rising as much as 10% for 2013, he predicts only a single-digit percentage increase next year primarily because of higher mortgage rates.

"There's no risk of any reversal of this housing recovery; it's just slowing the pace of this housing recovery," Yun said.

He said robust demand and affordable prices would lessen the impact of the higher mortgage rates in much of the country, but pricier markets in New York, parts of California and Hawaii would be hit harder by the higher mortgage rates.

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Housing Market

Big REIT Opportunities in the Housing Market Recovery

If you listen to most pundits, you would think housing is on its way back.

But I don't listen to people. I do my own research and make up my mind.

And what I've found is that this housing rally is a double-edged sword. But if you're smart you take advantage of its potential while eliminating much of its real risks.

The one edge: A more active market is undoubtedly good for the economy, since it leaves less money trapped in houses people no longer want. But rising prices are not good news, as I explain below.

The other: There are still some excellent opportunities in the real estate sector through real estate investment trusts (REITs), but you need to very selective (also below).

And as usual, it's all about 3 things: location, location, location.

Except this time around, it's not the locations you would think.

A Cautionary Tale

Let me explain by example…

I have just returned from Britain and the trajectory of that economy shows very clearly: High real estate prices are a major competitive disadvantage.

House prices in Britain are much higher than in the United States. The average house price in June 2013, according to Rightmove's house price index, was 253,000 pounds, about $382,000 at today's exchange rates.

That compares with about $266,000 in the U.S., taking a weighted average of new and existing home sales prices. However, you have to add into this calculation the reality that British incomes are only around 80% of U.S. incomes, when converted at market exchange rates (about 75% at purchasing power parity).

So in terms of earning power, U.K. house prices average about 80% higher than U.S. house prices.

That doesn't take into account the fact that British houses are on average substantially smaller than U.S. houses, or the exorbitant additional costs of trying to live in London, Britain's bloated capital, where house prices have been pushed up by the advent of wealthy Russians.

Housing Market

Will the Home Mortgage Interest Deduction Vanish in 2013?

In 2013, Congress is expected to explore a number of tax reforms in order to address staggering deficits and a crippling $17 trillion in debt owed by the Federal government.

No proposed tax reform will be more controversial this year than attempts to alter the Home Mortgage Interest Deduction (HMID).

Considered the holy grail of tax deductions, the annual tax break to homeowners, which provides more than $100 billion a year in tax relief, could see significant changes, thus affecting the finances of millions of Americans.

But in order to understand how these changes could affect you, one needs to understand how this tax break became so monstrous in the first place, and what the impact of such proposals could have on the housing markets.

In fact, this very issue proves why even grander tax reform is necessary right now in the United States.

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Housing Market

Hedge Fund Sues Government Over Seizing Fannie Mae, Freddie Mac Profits

A hedge fund hoping to capitalize on the comeback of Fannie Mae and Freddie Mac claims in a lawsuit the government illegally seized the profits of the two mortgage finance giants.

The suit, filed Sunday by Perry Capital LLC, says the government violated a 2008 law that put Fannie and Freddie into conservatorship, through an amendment changing the terms of the government's bailout.

Under original terms, Fannie and Freddie paid fixed quarterly dividends equal to 10% of the government's stake.

But in 2012, the U.S. Treasury Department amended the terms of the bailout and began taking all Fannie and Freddie's quarterly profits.

Theodore Olson, an attorney representing Perry Capital, said in a news release the 2008 law "established very specific rules about the government's limits and obligations under conservatorship. Investors had every right to expect these rules to be followed.

"If the government wanted to assume the powers of receivership, it could have chosen that course," Olson said. "Instead, it chose conservatorship, and with the [amendment] it overreached, exceeding the legal boundaries of the statute and failing to meet obligations of conservatorship mandated by Congress" under the 2008 law.

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Housing Market

How to Profit from the Housing Market Recovery

Housing has rebounded in a big way.

Sales of new, single-family homes surged from April to May at the highest rate since July 2008 and by 29% over the previous year, while existing home sales reached the highest level since November 2009.

And home prices posted their biggest annual increase in more than seven years in May and are expected to continue rising, CoreLogic said Tuesday.

How can you profit from the housing market recovery?

Buying the homebuilders' stocks? Sure, but that's almost too easy, and after impressive gains, homebuilder stocks may have peaked for the short term.

But savvy investors trying to figure out how to profit from the housing market recovery can look beyond the homebuilders to other companies benefiting from the recovery.

Among them: construction materials suppliers, home improvement retailers, paint companies and those manufacturing and selling furniture and appliances.

In fact, furniture and related products led all other manufacturing sectors in the latest Institute for Supply Management report for June.

Here are five companies worth a look if you're seeking to profit from the housing market recovery.

Playing the Housing Market Recovery

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