Best of the Week
Most Popular
1.The Gallery of Crowd Behavior: Goodbye Stock Market All Time Highs - Doug_Wakefieldth
2.Tesco Meltdown Debt Default Risk Could Trigger a Financial Crisis in Early 2015 - Nadeem_Walayat
3.The Trend Every Nation on Earth Is Pouring Money Into - Keith Fitz-Gerald
4.Do Tumbling Buybacks Signal Another Stock Market Crash? - 26Mike_Whitney
5.Could Tesco Go Bust? How to Save Tesco from Debt Bankruptcy Risk - Nadeem_Walayat
6.Gold And Silver Price - Respect The Trend But Prepare For A Reversal - Michael_Noonan
7.U.S. Economy Faltering Momentum, Debt and Asset Bubbles - Lacy Hunt
8.Bullish Silver Stealth Buying - Zeal_LLC
9.Euro, USD, Gold and Stocks According to Chartology - Rambus_Chartology
10.Evidence of Another Even More Sweeping U.S. Housing Market Bust Already Starting to Appear - EWI
Last 5 days
Election Result - Labour Wins South Yorkshire Police and Crime Commissioner - 31st Oct 14
Gold Price Falls, Stocks Record Highs as Japan Goes ‘Weimar’ - 31st Oct 14
EUR/USD - Double Bottom Or New Lows? - 31st Oct 14
More Downside Ahead for Gold and Silver - 31st Oct 14
QE Is Dead, Now You Tell Me What You Know - 31st Oct 14
Welcome to the World of Volatility - 31st Oct 14
Stocks Bear Market Crash Towards New All Time Highs as QE3 End Awaits QE4 Start - 31st Oct 14
US Mortgages, Risky Bisiness "Easy Money" - 30th Oct 14
Gold, Silver and Currency Wars - 30th Oct 14
How to Recognize a Stock Market “Bear Raid” on Wall Street - 30th Oct 14
U.S. Midterm Elections: Would a Republican Win Be Bullish for the Stock Market? - 30th Oct 14
Stock Market S&P Index MAP Wave Analysis Forecast - 30th Oct 14
Gold Price Declines Once Again As Expected - 30th Oct 14
Depression and the Economy of a Country - 30th Oct 14
Fed Ends QE? Greenspan Says Gold “Measurably” “Higher” In 5 Years - 30th Oct 14
Apocalypse Now Or Nirvana Next Week? - 30th Oct 14
Understanding Gold's Massive Impact on Fed Maneuvering - 30th Oct 14
Europe: Building a Banking Union - 30th Oct 14
The Colder War: How the Global Energy Trade Slipped From America's Grasp - 30th Oct 14
Don't Get Ruined by These 10 Popular Investment Myths (Part VIII) - 29th Oct 14
Flock of Black Swans Points to Imminent Stock Market Crash - 29th Oct 14
Bank of America's Mortgage Headaches - 29th Oct 14
Risk Management - Why I Run “Ultimate Trailing Stops” on All My Investments - 29th Oct 14
As the Eurozone Economy Stalls, China Cuts the Red Tape - 29th Oct 14
Stock Market Bubble Goes Pop - 29th Oct 14
Gold's Obituary - 29th Oct 14
A Medical Breakthrough Creating Stock Profits - 29th Oct 14
Greenspan: Gold Price Will Rise - 29th Oct 14
The Most Important Stock Market Chart on the Planet - 29th Oct 14
Mysterious Death od CEO Who Went Against the Petrodollar - 29th Oct 14
Hillary Clinton Could Be One of the Best U.S. Presidents Ever - 29th Oct 14
The Worst Advice Wall Street Ever Gave - 29th Oct 14
Bitcoin Price Narrow Range, Might Not Be for Long - 29th Oct 14
UKIP South Yorkshire PCC Election Win is Just Not Going to Happen - 29th Oct 14
Evidence of New U.S. Housing Market Real Estate Bust Starting to Appear - 28th Oct 14
Principle, Rigor and Execution Matter in U.S. Foreign Policy - 28th Oct 14
This Little Piggy Bent The Market - 28th Oct 14
Global Housing Markets - Don’t Buy A Home, You’ll Get Burned! - 28th Oct 14
U.S. Economic Snapshot - Strong Dollar Eating into corporate Profits - 28th Oct 14
Oliver Gross Says Peak Gold Is Here to Stay - 28th Oct 14
The Hedge Fund Rich List Infographic - 28th Oct 14
Does Gold Price Always Respond to Real Interest Rates? - 28th Oct 14
When Will Central Bank Morons Ever Learn? asks Albert Edwards at Societe General - 28th Oct 14
Functional Economics - Getting Your House in Order - 28th Oct 14
Humanity Accelerating to What Exactly? - 27th Oct 14
A Scary Story for Emerging Markets - 27th Oct 14
Could Tesco Go Bust? How to Save Tesco from Debt Bankruptcy Risk - 27th Oct 14
Europe Redefines Bank Stress Tests - 27th Oct 14
Stock Market Intermediate Correction Underway - 27th Oct 14
Why Do Banks Want Our Deposits? Hint: It’s Not to Make Loans - 26th Oct 14
Obamacare Is Not a Revolution, It Is Mere Evolution - 26th Oct 14
Do Tumbling Buybacks Signal Another Stock Market Crash? - 26th Oct 14
Has the FTSE Stock Market Index Put in a Major Top? - 26th Oct 14
Christmas In October – Desperate Measures - 26th Oct 14
Stock Market Primary IV Continues - 26th Oct 14
Gold And Silver Price - Respect The Trend But Prepare For A Reversal - 25th Oct 14
Ebola Has Nothing To Do With The Stock Market - 25th Oct 14
The Gallery of Crowd Behavior: Goodbye Stock Market All Time Highs - 25th Oct 14
Japanese Style Deflation Coming? Where? Fed Falling Behind the Curve? Which Way? - 25th Oct 14
Gold Price Rebounds but Gold Miners Struggle - 25th Oct 14
Stock Market Buy the Dip or Sell the Rally - 25th Oct 14
Get Ready for “Stupid Cheap” Stock Prices - 25th Oct 14
The Trend Every Nation on Earth Is Pouring Money Into - 25th Oct 14 - Keith Fitz-Gerald
Bitcoin Price Decline Stopped, Possibly Temporarily - 25th Oct 14

Free Instant Analysis

Free Instant Technical Analysis


Market Oracle FREE Newsletter

Stocks Epic Bear Market

How Will the Housing Market Affect the U.S. Economy in 2013?

Economics / US Economy Dec 21, 2012 - 09:38 AM GMT

By: InvestmentContrarian

Economics

Sasha Cekerevac writes: One of the most important sectors of the economy is the housing market. The housing market is crucial for several reasons. First, the housing market employs a lot of people, both directly and indirectly. This includes the direct employment of people in the housing industry, such as tradesmen and homebuilders, and the indirect employment of people in related industries, such as the automakers that build pickup trucks to be used by tradesmen and homebuilders.


Another crucial factor is the direction of home prices. We’ve now seen continued strength in home prices, which is a positive for the homeowner. Considering a house is the largest property many citizens own, to see its value continually decline is mentally and emotionally difficult. However, with month after month of steady gains, this will help alleviate some concerns about the future.

According to the latest report from research and analytics firm CoreLogic, Inc. (NYSE/CLGX), in October 2012, home prices, including distressed sales, jumped up 6.3% nationwide. This is the largest increase for home prices since June 2006. This was not a one-time jump for the housing market, but the eighth consecutive month of year-over-year nationwide increases in home prices. (Source: “CoreLogic Home Price Index Marks Eighth Consecutive Month of Year-Over-Year Gains,” CoreLogic, Inc., December 4, 2012.)

In regards to homebuilder sentiment for the housing market, which is correlated with home prices, confidence continues to rise. According to the National Association of Home Builders (NAHB), confidence by homebuilders in December rose for the eighth consecutive month. This is the highest level of confidence by homebuilders since April of 2006. (Source: “Builder Confidence Continues Improving in December,” National Association of Home Builders, December 18, 2012.)

The chairman for the NAHB, Barry Ruttenberg, stated in the release, “Builders across the country are reporting some of the best sales conditions they’ve seen in more than five years, with more serious buyers coming forward, and a shrinking number of vacant and foreclosed properties on the market.”

Following these comments, it is no surprise that the Department of Commerce’s release of building permits and housing starts was strong. For November 2012, building permits were up 26.8% from November 2011, and housing starts in November 2012 were up 21.6% from November 2011. (Source: “New Residential Construction in November 2012,” U.S. Department of Commerce, December 19, 2012.)

The low inventory in the housing market is creating increased demand, which is seeing higher home prices and an increase in building permits to meet this demand. The National Association of Realtors (NAR) released data for November 2012 detailing that total existing home sales, which are completed transactions, were running at an annual rate of five million that month. This was much stronger than expectations of 4.8 million, and reflects an improvement of 14.5% from existing home sales in November 2011. The national median existing home price was $180,600 in November 2012, up 10.1% from November 2011. (Source: “November Existing Home Sales and Prices Maintain Uptrend,” National Association of Realtors, December 20, 2012.)

How does a rebound in the housing market affect the U.S. economy in 2013? For the last few years since the Great Recession, the combined decline in home prices and the crash in the housing market in general have been a headwind and a large negative for America’s economy. We are now seeing month after month of positive news regarding the housing market. If this were only one or two months, questions would remain about the sustainability of the rebound. Considering the extended length and duration of the increase in the housing market off the bottom, home prices should continue to see relatively stable gains.

Note that I do not believe we will regain the previous highs in terms of home prices anytime soon; however, I do believe stability and reasonable growth will be attained. This will help drive many industries directly and indirectly related to the housing market. As I mentioned previously, pickup truck sales will be a benefactor, as well as various inputs into the housing market.

The rebound in home prices and growth in the housing market are impacting commodity prices. If I asked which of the 24 commodities tracked by Standard & Poor’s GSCI Spot Index was the strongest in 2012, I doubt many people would say lumber. But lumber prices have gone up 37% this year! Lumber prices have doubled since January 2009, and are now at a six-year high. (Source: “Lumber Reaches 6-Year High as Housing Rebound Erodes U.S. Supply,” Bloomberg, December 17, 2012.)

Clearly, the housing market rebound is here to stay, as home prices will continue to increase for as long as interest rates remain low. The real question will be: once interest rates start rising, how will the housing market react? Historically, a rise in interest rates is met with a difficult housing market sector.

Home prices are based on income, interest rates, and supply. In the current environment, income is not growing, but interest rates continue to be at multi-decade lows while rents are rising; combined with a tight housing supply in many markets, this is making buying a house a value proposition.

It will be interesting to see what happens in a couple of years, when interest rates are rising and the supply-demand equation is more balanced. If incomes aren’t rising then, we could potentially see home prices, as well as the entire housing market, take a hit. Until that point, the housing market will remain strong and will have a positive impact on the U.S. economy.

Source: http://www.investmentcontrarians.com/inflation/how-w...

By Sasha Cekerevac, BA
www.investmentcontrarians.com

Investment Contrarians is our daily financial e-letter dedicated to helping investors make money by going against the “herd mentality.”

About Author: Sasha Cekerevac, BA Economics with Finance specialization, is a Senior Editor at Lombardi Financial. He worked for CIBC World Markets for several years before moving to a top hedge fund, with assets under management of over $1.0 billion. He has comprehensive knowledge of institutional money flow; how the big funds analyze and execute their trades in the market. With a thorough understanding of both fundamental and technical subjects, Sasha offers a roadmap into how the markets really function and what to look for as an investor. His newsletters provide an experienced perspective on what the big funds are planning and how you can profit from it. He is the editor of several of Lombardi’s popular financial newsletters, including Payload Stocks and Pump & Dump Alert. See Sasha Cekerevac Article Archives

Copyright © 2012 Investment Contrarians - All Rights Reserved Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.

Investment Contrarians 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