Best of the Week
Most Popular
1.U.S. Inner City Turmoil and Other Crises: Ron Pauls Predictions for 2015 - Dr_Ron_Paul
2. What’s In Store For Gold Price in 2015? - Ben Kramer-Miller
3.Crude Oil Price Ten Year Forecast to 2025: Importers Set to Receive a $600 Billion Refund - Andrew_Butter
4.Je ne suis pas Charlie - I am not Charlie - Nadeem_Walayat
5.The New Normal for Oil? - Marin_Katusa
6.Will Collapse in Oil Price Cause a Stock Market Crash? - OilPrice.com
7.UK CPI Inflation Smoke and Mirrors Deflation Warning, Inflation Mega-trend is Exponential - Nadeem_Walayat
8.Winter Storms Snow and Wind Tree Damage Dangers, DIY Pruning - Nadeem_Walayat
9.Oil Price Crash and SNP Independent Scotland Economic Collapse Bankruptcy - Nadeem_Walayat
10.U.S. Housing Market Bubble 2.0 Meet the Pin - James_Quinn
Last 5 days
Gold's Time Has Come - 27th Jan 15
France America And Religious Terror War - 27th Jan 15
The New Drivers of Europe's Geopolitics - 27th Jan 15
Gold And Silver - Around The FX World In Charts - 27th Jan 15
It’s Not The Greeks Who Failed, It’s The EU - 27th Jan 15
Gold and Silver Stocks Investing Basics - 27th Jan 15
Stock Market Test of Strength - 26th Jan 15
Is the Gold Price Rally Over? - 26th Jan 15
ECB QE Action - Canary’s Alive & Well - 26th Jan 15
Possible Stock Market Pop-n-drop in Store For SPX - 26th Jan 15
Risk of New Debt Crisis After Syriza Victory In Greece - 26th Jan 15
How Eurozone QE Works: A Guide to Draghi's News - 26th Jan 15
Comprehensive Silver Price Chart Analysis - 26th Jan 15
Stock Market More Retracement Expected - 26th Jan 15
Decoding the Gold COTs: Myth vs Reality - 26th Jan 15
Greece Votes for Syriza Hyperinflation - Threatening Euro-zone Collapse or Perpetual Free Lunch - 26th Jan 15
Draghi's "No-growth" QE Money for Stocks, Zilch for the Economy - 25th Jan 15
Unjust and Undeclared Wars - 25th Jan 15
The European Central Bank Commits Monetary Suicide - 25th Jan 15
Stock Market ECB EQE week - 25th Jan 15
Gold And Silver Timing Is Most Important Element - 25th Jan 15
The Best Way to Invest in the Next Alibaba Internet Stock IPO - 25th Jan 15
The Outpatient Surgery Business Rains Cash into Healthcare Stocks - 25th Jan 15
Stock Traders Flock to Gold GLD ETF - 24th Jan 15
10 Reasons Why You Need an Offshore Bank Account - 24th Jan 15
Goldman Sachs Blankfein - Regulation is Like Background Noise - 24th Jan 15
Gold in Euros Surges As ECB To Print Trillion Euros and Greek Election This Sunday - 24th Jan 15
Gold Bear Market Rally or New Bull ? - 24th Jan 15
Euro-zone 'QE already Working' Says IMF Lagarde - 23rd Jan 15
ECB and EU LTRO and QE for Dummies: Or, Make These Trades - 23rd Jan 15
Debt and Deflation: Three Financial Forecasts - There's More Than Falling Prices - 23rd Jan 15
Market Should Not Doubt' Mario Draghi ECB QE - 23rd Jan 15
Francs, Bonds, Barrels, and Bail-Ins - 23rd Jan 15
Are Plunging Petrodollar Revenues Behind the Fed’s Projected Rate Hikes? - 22nd Jan 15
Stocks Bear Market Lessons from History - 22nd Jan 15
Russia's Plans for Arctic Supremacy - 22nd Jan 15
166 Trillion Reasons Why Bank Stocks Are So Cheap - 22nd Jan 15
Will Gold Price Break Out Once Again? - 22nd Jan 15
The Cult of Central Banking - 21st Jan 15
Five Stock Market Questions Wall Street Hopes You’ll Never Ask - 21st Jan 15
China's Yuan Enters the Currency "Big Leagues" to Take on the Dollar - 21st Jan 15
Investor implications of QE by the ECB - 21st Jan 15
Deflation Bonanza! And the Fool's Mission to Stop It - 21st Jan 15
Messin' With My Financial Brain - 21st Jan 15
Are Stock Market Buyouts Checking Out? - 20th Jan 15
Legal “Steroids” Are Making This Tech Stock a “Buy” - 20th Jan 15
Are Stock Market Storm Clouds Massing? - 20th Jan 15
The Swiss Release the Kraken! - 20th Jan 15
The European Union, Nationalism and the Crisis of Europe - 20th Jan 15
Swiss Say No to QE - 20th Jan 15
Gold Demand Explodes as Volatility and Fear Stalk Market - 20th Jan 15
The Truth About This Stock Market "Meltdown" Indicator - 20th Jan 15
Markets 2015 More Of The Same? - 20th Jan 15
Is Market Sentiment Shifting to Gold? - 20th Jan 15
U.S. Dollar’s Major Breakout and Gold’s Simultaneous Rally - 19th Jan 15
Silver Price Breaks Out on Swiss France Euro Decoupling - 19th Jan 15
Gold Bullish Inverse Head and Shoulders Pattern - 19th Jan 15
Bundesbank Announces Repatriation of 120 Tonnes of Gold from Paris and New York Federal Reserve - 19th Jan 15

Free Instant Analysis

Free Instant Technical Analysis


Market Oracle FREE Newsletter

State of US Markets 2015 Report

U.S. Housing Market Continues to Rot, No Rebound in 2011

Housing-Market / US Housing Nov 18, 2010 - 06:22 AM GMT

By: Money_Morning

Housing-Market

Best Financial Markets Analysis ArticleLarry D. Spears writes: The year of 2010 saw very little improvement in the housing sector, and that's not likely to change in 2011.

The industry's weaknesses - high unemployment, tight credit, ineffectual government programs, soaring inventories, plunging prices, and so on - are simply too gaping to be resolved by next year.


Even the normally ultra-optimistic National Association of Realtors (NAR) came out of its annual conference in New Orleans in early November with a frown on its face, predicting that, "nationwide, homeowners can expect little, if any, increase in home values in 2011."

The real estate research and online brokerage firm Zillow agreed, issuing a report on Nov. 10 noting that U.S. home values fell by 4.3% in the third quarter and chances for improvement over the winter are slim.

"The unceasing declines in home values signal that we're in for a long, bleak winter of continued troubles for the housing market," said Zillow Chief Economist Stan Humphries. "The length and depth of the current housing recession is rivaling the Great Depression's real estate downturn and, with encouraging signs fading, will easily eclipse it in the coming months."

Undermined by Unemployment
Chief among the obstacles to a housing market recovery is high unemployment. Unemployment has driven foreclosure statistics to dizzying heights, and in conjunction with tight credit, kept new buyers out of the market.

Currently at 9.5% the national unemployment rate likely will remain near double-digits in 2011. In the meantime, credit markets remain tight, making it even more difficult for Americans to buy new homes or refinance their existing mortgages.

Although mortgage rates remain near their all-time lows - a recent average of 4.17% for 30-year fixed-rate loans and 3.57% for 15-year mortgages - actually getting one of those loans is another story. Banks are still trying to absorb losses from the earlier collapse of the mortgage market and dealing with record foreclosure levels, so they're demanding demonstrated job security and impeccable credit before granting loans to new homebuyers.

Lower interest rates have dramatically increased refinancing applications, which have doubled since the start of 2010 according to the Mortgage Bankers Association (MBA). However, less than half of those applications are being approved. And government programs have done little, if anything, to help.

Pitiful Programs
The government's Home Affordable Modification Program (HAMP), which was set up in March 2009 to help homeowners in trouble restructure their mortgages and avoid foreclosure, has been an abject failure.

Roughly 3 million of the 7 million homeowners facing foreclosure at the start of 2009 applied for relief under HAMP, but only 1.4 million were approved for temporary or trial modifications - and more than half of those have been canceled. By late October, only 466,708 homeowners had been granted permanent modifications.

Almost a quarter of the homes on which modification requests were cancelled are now in foreclosure - and, even worse, many homeowners who got modifications still wound up in foreclosure because of fees, late charges, and interest accrued while homeowners were waiting for approvals.

Meanwhile, the one government incentive that effectively cheered up the dour housing market - the federal homebuyers' tax credit - has fully expired. This program, which provided up to $8,000 in credits to first-time homebuyers and $6,500 for repeat purchasers, pushed many people to accelerate their buying decisions. However, the tax credit expired at the end of June and the market has cooled considerably as a result.

Absent the credit, the NAR says existing home sales for 2010 will total just 4.8 million, a 7% drop from 2009's 5.16 million. Pending home sales also fell in September and October, virtually guaranteeing a slow start in 2011.

For the year as a whole, the NAR sees existing-home sales climbing back to 5.1 million - but only if new jobs continue to be created. (Note: Several states, including California, also had smaller homebuyer incentives that have now expired.)

Still, sales and home prices will continue to languish next year, as foreclosures and housing inventory remain considerably high.

Foreclosures, Inventory, and Prices
Zillow said in its third-quarter report that 23% of U.S. residential mortgage holders are now "under water" on their loans - the highest level this year - and many will likely be forced into foreclosure in the year ahead.

"The high percentage of homeowners in negative equity ... represents a huge number of people who are not only more vulnerable to foreclosure, but who are essentially trapped in their current homes and are prevented from selling and buying a new home," said Zillow's Humphries. "This has profound implications for future demand and will be a millstone around the neck of the housing market."

NAR Chief Economist Lawrence Yun agreed, saying it will take at least another two years to clear the foreclosures and short sales currently on the market.

With tight credit keeping many qualified buyers at bay and foreclosures hitting an all-time high in the third quarter of 2010, the inventory of homes available for sale stood at 4.04 million units in September. That was a slight drop (1.9%) from August - but still represents a 10.7-month supply at current sales rates.

The average sales price for a home fell to $171,700 from $178,600 in September, and actual number of existing home sales was down 19.1% from year-ago levels.

The number of new-home sales actually rose 6.6% to an adjusted annual rate of 307,000 units, and the median price for those homes climbed from $220,500 to $223,800. However, the overall impact of the increase was minimal, since August sales were the third-lowest since the government began to track new-home numbers in 1963.

"Sales did rise, which is good," Celia Chen, a senior director at Moody's Analytics told CNN, "but the pace is still very weak ... still close to a record low. It just doesn't seem that demand is really firming."

That weak pace has also prompted the National Association of Home Builders (NAHB) to reassess its earlier estimate that 906,000 new homes would be built in 2011, saying in early October that their forecast "is less certain today."

A Sinking Feeling
It doesn't seem to matter which area of the country you consider, the outlook is dim from coast to coast. Zillow's Home Value Index of housing pricings in the 25 largest metropolitan areas found just six positive numbers in the third quarter - in Boston, Pittsburgh and four California cities - but even those numbers are misleading since the Zillow Index factors out foreclosure sales.

Local realtor surveys by The Boston Globe, The New York Times, The San Diego Union-Tribune and The Miami Heraldall had trouble finding anyone with optimistic forecasts for their areas.

Johnathan J. Miller, president of the real estate appraisal firm Miller Samuel, told The Times that despite small bursts of "happy housing news" in 2010, he expects "the 2011 New York market will be weaker."

Rick Loughlin, president of Coldwell Banker Residential Brokerage New England, echoed that sentiment to The Globe.

"We're in the choppy bottom, improving, but at a very slow pace," he said. "The real key issues are jobs and consumer confidence; when jobs come back, you'll see more of a recovery in housing."

So, given the state of the housing market, are there any stocks in that sector worth buying?

For most segments of the market - homebuilders, real estate developers, realty brokerages and mortgage companies - the answer right now is probably no.

In fact, the only remotely positive recommendation we've seen recently was given to Barron's by Deutsche Bank AG (NYSE: DB) analyst Nishu Sood, who said the time has come to "start nibbling" at the housing stocks.

"Five years into the housing market's fall, we believe it is finally near the point from which it can sustainably recover," said Sood.

Action to Take: The best approach to begin 2011 is probably to heed the words of Coldwell Banker's Loughlin and wait until you see some steady improvement in new-job creation. When it's clear that more people are going back to work - and keeping their jobs - start checking out the major housing stocks because lots of folks will want new homes to go along with their new positions.

If you want to get an early jump on the rest of the crowd, look first at the stocks of firms that supply the homebuilders - Weyerhaeuser Co. (NYSE: WY), recent price $17.20, being a good example. It's trading at less than a third of its April 2010 high of $53.69, even though it has managed to remain profitable throughout this mess (reporting trailing 12-month earnings of $1.04 a share) and has had increased year-over-year revenue and earnings for three of the last four quarters.

Source : http://moneymorning.com/2010/11/18...

Money Morning/The Money Map Report

©2010 Monument Street Publishing. All Rights Reserved. Protected by copyright laws of the United States and international treaties. Any reproduction, copying, or redistribution (electronic or otherwise, including on the world wide web), of content from this website, in whole or in part, is strictly prohibited without the express written permission of Monument Street Publishing. 105 West Monument Street, Baltimore MD 21201, Email: customerservice@moneymorning.com

Disclaimer: Nothing published by Money Morning should be considered personalized investment advice. Although our employees may answer your general customer service questions, they are not licensed under securities laws to address your particular investment situation. No communication by our employees to you should be deemed as personalized investent advice. We expressly forbid our writers from having a financial interest in any security recommended to our readers. All of our employees and agents must wait 24 hours after on-line publication, or 72 hours after the mailing of printed-only publication prior to following an initial recommendation. Any investments recommended by Money Morning should be made only after consulting with your investment advisor and only after reviewing the prospectus or financial statements of the company.

Money Morning Archive

© 2005-2014 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

Free Report - Financial Markets 2014