Category

Housing Market

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.

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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."

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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.

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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.

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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.

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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.

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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…

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Case-Shiller Home Price Index and Home Sales: What the Latest U.S. Housing Market Data Show

The latest U.S. housing market data released Tuesday underscore the persisting trend of uneven performance in the industry.

The S&P/Case-Shiller Home Price Index showed prices hit post-bubble lows in February, and U.S. home sales data show that while not all housing news is dismal, a strong and stable recovery is a long way off.

The U.S. housing sector has been a drag on the economy since a home price bubble burst and helped cause the 2007-2009 recession. While many economists maintain that a budding recovery is blooming in the troubled sector, recent housing market data are simply another wake-up call.

Here's a look at the numbers.

Case-Shiller Home Price Index Falls

The Case-Shiller Home Price Index of 20 cities revealed a price drop from January to February of 0.8% (on a non-seasonally adjusted basis). The 10-city index also fell 0.8%.

The 20-city index declined 3.5% from a year ago, while the 10-city composite slipped 3.6%.

"Nine housing markets and both composites hit post crisis lows," David Blitzer, a spokesman for S&P, told CNN Money. Included in the nine markets are Atlanta, Charlotte, Chicago, Las Vegas and New York.

Blitzer went on to note, "While there might be pieces of good news in this report, such as some improvements in many annual rates of return, February 2012 data confirm that, broadly speaking, home prices continued to decline in the early months of the year."

Foreclosures and other distressed property sales continue to be the main challenge for home prices, Pat Newport, an analyst for IHS Global Insight relayed to CNN.

"We still have 6 million homeowners who are late on their payments," said Newport. "We'll still have lots of foreclosures, which will depress prices."

In fact, with January's mammoth $26 billion mortgage settlement between five major banks and a group of state attorneys general, foreclosures that had been held up for a year or more are now moving forward.

"Enough homes are in the foreclosure pipeline to keep house prices falling through much of this year," Celia Chen, a housing economist at Moody's Analytics, told the Los Angeles Times.

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New Wave of Foreclosures Will Sink the Housing Market Rebound

The long-anticipated housing market rebound will hit a speed bump this year as the number of foreclosures rises again.

With January's mammoth $26 billion settlement between five major banks and a group of state attorneys general, foreclosures that had been held up for a year or more are now moving forward.

The spike in foreclosures will arrive just as other data, such as the 5.1% increase in new construction permits reported on Tuesday, had begun to point to a housing market rebound.

"We expect to see foreclosure-related sales increase in 2012, particularly pre-foreclosure sales, as lenders start to more aggressively dispose of distressed assets held up by the mortgage servicing gridlock over the past 18 months," Brandon Moore, CEO of RealtyTrac, told CNN Money.

RealtyTrac's February report showed new default notices – the first step in the foreclosure process – were up 1% from January. Default notices increased dramatically in some states, such as Pennsylvania (35%), Florida (33%) and Indiana (37%).

"The pig is starting to move through the python," Daren Blomquist, director of marketing for RealtyTrac, told CNN Money.

Distressed sales already account for about one out of three U.S. home sales.

The National Association of Realtors (NAR) reported this week that 20% of home sales in February were foreclosures and 14% were short sales.

In a short sale, an owner who owes more on their home than it's worth agrees to sell for less, with the bank agreeing to accept the loss.

That's a far cry from a normal housing market, when distressed sales are less than 5%.

For 2012, RealtyTrac predicts a 25% increase in foreclosures, which will push the portion of distressed sales even higher.

And the picture doesn't figure to improve for quite some time. Paul Dales of Capital Economics estimates as many as an additional 3 million foreclosures over the next several years.

The Uneven Impact on the Housing Market

However, the impact of this wave of foreclosures will be felt unevenly.

All of the states that saw increases in new default notices were those in which the courts play a role in foreclosures. The robo-signing issues addressed in the bank settlement occurred almost exclusively in such states.

States that don't use a judicial foreclosure process didn't accumulate a backlog. In fact, foreclosure activity in those states was down 5% in February from the previous month, and down 23% from the February 2011.

But among the 26 states that use a judicial foreclosure process, activity rose 2% in February from the month before. Foreclosure activity was up 24% from the previous year.

That leaves little room for optimism in hard-hit states such as Florida.

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