Category

Housing Market

Housing Market

Why You Can't Trust Bob Toll's Prediction of 20% Home Price Increases in 2013

Bob Toll, Executive Chairman of Toll Brothers, recently told Reuters that home prices are going to jump 20% in 2013 and another 25-30% in 2014.

But before you decide to pile into real estate, you might want to think about it for a moment.

It's not that there's anything wrong with Mr. Toll, nor even his prediction. He is a seasoned executive in one of the most respected homebuilders in the country; it's why he made this prognostication and what he stands to gain from it that bothers me:

  • Toll Brothers (NYSE: TOL) is one of the most prominent and capable homebuilders in the country. If people believe that real estate will appreciate, they are more likely to buy more of Bob Toll's product.
  • Toll Brothers needs more of the same – big bailouts, big stimulus and low interest rates because that greases the skids in the banking system for big real estate companies like his. Without the extra money floating around, Toll Brothers' financing options are limited and he can't build or at least build as much. Worse, if interest rates rise, his cost of capital will increase significantly and negatively impact his margins. Rising property values give companies like Toll Brothers greater collateral and borrowing power, so of course he wants properties to appreciate…a lot.
  • Toll is also an outside advisor to President Obama. That means he's plugged into the White House like other big business leaders and has a vested interest in preserving the status quo rather than shaking up the establishment and really fixing things.

As for the notion that real estate will appreciate 20% next year and as much as 30% the year after, that's a more nuanced insight. Note, I'm not saying it's impossible, just that it's highly unlikely on anything other than an extremely localized basis.

Why Bob Toll is Wrong About Home Prices

When viewed against the longer term lens of history, housing values are still as much as 6-12% overvalued.

You can see that quite clearly in the Case-Shiller Index created by Yale's Robert Shiller. Take a look:

Housing Market

Drop in New Home Sales Short Detour in Long, Slow Recovery

Yesterday's (Wednesday) report of a drop in new home sales for October briefly sent shudders through a housing market that has appeared on the road to recovery, but experts immediately offered assurances that the bad news was temporary.

"The new-home sales data are volatile and revision-prone and we are not changing our view that a modest recovery in home sales, construction activity, and prices is well under way," John Ryding and Conrad DeQuadros of RDQ Economics said in a research note.

New home sales fell 0.3% in October, to an annual rate of 368,000 compared to September's 369,000. Economists had expected a rate of 390,000.

Though a slight drop from the previous month, October's new home sales rate is actually up 17.2% year over year.

And while far below the peak of 1.4 million reached at the height of the housing bubble, new home sales continue to creep up from the sub-300,000 lows seen in 2010 and 2011.

That, combined with recent positive trends from just about every other housing indicator, such as existing home sales, housing starts, building permits, and the home builder sentiment index, had most analysts brushing off the negative new home sales numbers.

On Monday, for instance, the Case-Shiller index for the third quarter showed housing prices nationwide were up 3.6% from the same period one year ago, its second year-over-year gain.

"We expect new single-family housing demand to continue its modest upward trend throughout the next year, driven by record-high affordability," Yelena Shulyatyeva, an economist with BNP Paribas, said in a research note.

To continue reading, please click here...

QE3 Will Give Rebounding Homebuilder Stocks An Extra Push

QE3 – Federal Reserve Chairman Ben Bernanke's $40 billion-a-month booster shot – could be just what the doctor ordered to keep homebuilder stocks surging.

The Fed's buying of mortgage-backed securities (MBS) is designed to help push down 30-year mortgage rates — a major incentive for consumers to buy a house.

And now with QE3 (the third round of quantitative easing), the central bank has promised to keep buying $40 billion per month of MBS until…well, until forever if needed.

The strategy is already working. Last week, just a month after QE3 was announced, mortgage interest rates fell to the lowest level on record.

The average 30-year loan stood at 3.39% as of Oct. 11- down from 6.1% at the start of the recession in December 2007.

And the Fed has said it plans to keep its own federal funds rate, a benchmark for interest rates, at "exceptionally low levels" at least through mid-2015.

Such policies, designed to jumpstart the economy by boosting the housing market, necessarily benefit homebuilder stocks as well.

"You get more benefit when people buy homes," Bernanke says. "It's the purchases of new homes that generate the construction activity, the furnishing, all those things that help the economy grow."

To continue reading, please click here...

Ben Bernanke's Misguided Focus on Housing is Like a Bad Joke

It's a little early for April Fools, but Ben Bernanke might just be a prankster at heart.

I say this because he recently told the Economic Club of Indiana in Indianapolis that the Fed's plans for QE3 would help create more economic activity and higher home prices. Then he added, almost as an afterthought, that this would help many more savers than it would hurt.

I was waiting for the punch line…or the laugh track…or maybe an old bada-boom from Paul Schaeffer's band offstage. Only it never came.

It's like he was making a bad joke, "but QE is good for savers. No, really! I swear…"

Why the Fed chief keeps linking housing prices to savings and, by implication, to an economic recovery defies logic.

No matter how hard he tries, he can't solve our nation's economic woes by making the same mistakes all over again.

Part of the reason housing blew up in the first place is that people began to view rising home prices as personal ATM machines. Now Bernanke is simply putting a new face on the same monster.

Think about it…

We already have a multi-year oversupply in homes on the market and ridiculous amounts of construction are still going on in parts of the country where there are quite literally no buyers. If you've been to Las Vegas or parts of Florida you know exactly what I'm talking about.

How many homes do we really need at a time when values remain 30%-50%, and in some places even 70% below their peak?

Certainly not the millions of new homes that Bernanke thinks we do while unemployment remains high and actual buying power has been dramatically reduced.

And millions of strapped American families two paychecks away from bankruptcy surely don't care.

Bernanke's False Bottom

Now I know the media is very excited about recent data showing a recovery in housing prices, but let's take a deep breath. Seasonal demand accounts for a good portion of the bump. So does bargain hunting.

This suggests a new round of speculators has entered the game — and those folks are buying with cash, making mortgages irrelevant.

As a result, prices are being bid up even though overall demand remains relatively constant.

Then there are the banks. All of them claim they want to lend money, yet find every excuse not to. While they will claim otherwise, practically speaking they're saying one thing and doing another.

This, too, speaks to a massive disconnect.

To continue reading, please click here...

Can the U.S. Housing Market Continue this Recovery?

The ailing U.S. housing market, the trigger of the Great Recession, is indeed starting to recover – but it'll take years before it's healed.

The Standard & Poor's/Case Shiller Home Price Index released today (Tuesday) revealed that home prices in 20 U.S. cities rose in June from the same period a year ago. It also marked the first such gain since September 2010.

All 20 cities tracked by the index also rose in June from May, the second month in a row in which every city posted month-over-month gains. The most robust one-month gains came from Detroit, Minneapolis, Chicago and Atlanta.

"The combined positive news coming from both monthly and annual rates of change in home prices bode well for the housing market," David Blitzer, chairman of the S&P's index committee said in a statement. "We seem to be witnessing exactly what we need for a sustained recovery: monthly increases coupled with improving annual rates of change."

Helping the housing market rebound are record-low interest rates. Mortgage rates hit historic lows this year, and while they have inched up a tad, they are still at record low levels.

The National Association of Realtors last week reported sales of previously occupied homes climbed 10% in the past year. Builders, seeing an uptick in interest from potential buyers, are growing more confident. The group in June applied for the largest number of building permits in roughly four years.

The news is encouraging, but don't be mistaken: The U.S. housing market is still a far cry from healed or even healthy.

"We seem to have upward momentum and we have confirmatory evidence and like NAHB housing confidence index," said economist and index founder Robert Shiller. "But you know we have lots of clouds on the horizon too."

To continue reading, please click here…

Read More…

This is How to Fix the U.S. Housing Market

Real estate research firm Reis reported today (Thursday) that apartment rents are rising at the fastest rate since 2007.

Reis said vacancies hit a 10-year low as rental rates for the second quarter jumped 1%, the biggest increase since the financial crisis.

Compare this information with recent data on pending home sales, new home sales, and housing prices that has been more promising than months' past and it seems the U.S. housing market is on the mend.

That was the topic posed to Money Morning's Chief Investment Strategist Keith Fitz-Gerald during a visit Thursday to Fox Business' "Varney & Co." program. Fitz-Gerald outlined what the recent housing data is telling us about the U.S. economy and the future of home prices and sales.

He also suggests what the U.S. government should do to encourage a stronger economic recovery and let people once again believe in the American Dream of home ownership.

Check out this Q&A session with Fitz-Gerald about the latest developments in the U.S. housing market. You can see all of Keith's analysis in the video below.

Click here to continue reading...

What the Government Must do to Fix Housing

Recent data on pending home sales, new home sales, housing prices and rental rates have suggested the U.S. housing market is really on the mend – is that so?

That was the question posed to Money Morning's Chief Investment Strategist Keith Fitz-Gerald during a visit Thursday to Fox Business' "Varney & Co." program. Fitz-Gerald outlined what the recent housing data is telling us about the U.S. economy and the future of home prices and sales.

He also suggested what the U.S. government should do to encourage a stronger economic recovery and let people once again believe in the American Dream of home ownership.

You can see all of Keith's analysis on the U.S. housing market in the accompanying video.

Read More…

U.S. Housing Market Flooded by Short Sales

Home sweet home has been anything but for scores of Americans these past few years, and the picture hasn't brightened much to date.

The housing market is still hurting and the foreclosure fiasco continues to loom despite record-low mortgage rates.

Homes in some stage of foreclosure accounted for more than one in four home sales during the first quarter of 2012, RealtyTrac reported today (Thursday).

Distressed properties that were either in default, scheduled for auction or bank-owned made up 26% of all residential sales during the first quarter. That was up from 22% in the prior quarter and 25% from the same period a year earlier, according to Thursday's data.

To continue reading, please click here...

Investing in Home Builder Stocks: What You Need to Know

After years of tumbling share prices, investing in home builder stocks has been a profitable venture over the past few months.

Year to date, the exchange-traded fund for the home building industry, SPDR Home Builder (NYSE: XHB), is up by 26.1%.

It's the same story for individual home builder stocks, too.

Luxury home builder Toll Brothers (NYSE: TOL) has risen 25.9% since the first of the year. The largest home builder by market capitalization, Lennar Corp. (NYSE: LEN), has soared 43.6% in 2012.

So confident are home builders now that Lennar is expanding its corporate headquarters in Miami by 30,000 feet, an increase of one-third in square footage, according to an article in the South Florida Business Journal.

Home builder stocks, however, could be near the end of their steep rise. The housing market remains unstable and has triggered more skepticism in the sector.

Here's what you should consider before investing in home builder stocks.

To continue reading, please click here....

Case-Shiller Index: Is This the Housing Market Bottom?

Analysts, government officials and certainly homebuyers are spending hours trying to figure out if we have reached the housing market bottom.

Yesterday's (Tuesday's) data would seem to suggest the bottom is a bit bumpier than most people think.

According to the S&P/Case-Shiller home price index of 20 cities, home prices declined 3.5% from a year ago, while the 10-city composite slipped 3.6%. That meant fresh new post-bubble lows for home prices.

New-home sales in March also fell from their February level, the Commerce Department said. Together, they pointed to a more lackluster market.

"We're still in a slow period," said Robert Shiller, who co-founded the index that bears his name. "We're still in a funk."

But behind those numbers, there are reasons to be hopeful.

With borrowing costs near all-time lows, an economy that's bouncing back and cheap foreclosure properties attracting buyers, housing could be on the mend.

Knowing whether the housing market has bottomed out is important because nobody wants to pay thousands of dollars more for a property that could decline in value next week, next month or next year.

"The perception that prices could go lower…that's certainly keeping some people on the sidelines," Louis Cammarosano, general manager at HomeGain told Bankrate.com.

That's a problem because until buyers come back in significant numbers, the housing market can't completely regain its health. And without a housing market recovery, there won't be a real economic recovery.

But while we'd all like to know where the bottom is – pinpointing the exact date really doesn't matter.

Here's why…

To continue reading, please click here...

© 2015 Money Map Press. All Rights Reserved. Protected by copyright of the United States and international treaties. Any reproduction, copying, or redistribution (electronic or otherwise, including the world wide web), of content from this webpage, in whole or in part, is strictly prohibited without the express written permission of Money Morning. 16 W. Madison St. Baltimore, MD, 21201, Email: customerservice@MoneyMorning.com