Best of the Week
Most Popular
1.How U.S. Dollar Destruction Threatens the Global Economy - Steve Forbes
2.Why UK House Prices Will Continue Rising - 'It's Immigration Stupid' - Nadeem_Walayat
3. Bitcoin Price at Beginning of a Move up? - Mike_McAra
4.Gold Price to Plunge, Visiting Fort Knox - David_Hague
5.Silver Price Forecast - Metal to Gain Ground in August on These Factors - Jim Bach
6.Gold And Silver Will Rise With US Dollar Demise, Just Not Soon - Michael_Noonan
7.Bitcoin Price Strong Move Possible - Mike_McAra
8.Israel Gaza War Crimes - Soldier's Ordered to Shoot Civilians Including Children - C4News - C4News
9.UK House Prices Crash Warning - Daily Mail Cognitive Dissonance - Nadeem_Walayat
10.UK House Prices Boom - Top Quick Cheap Tips to Help Sell Your Home - Nadeem_Walayat
Last 5 days
Gold Rising Interest Rate Fallacy - 22nd Aug 14
Jackson Hole: Myth of the All Powerful Central Banker Continues - 22nd Aug 14
Partying On In The Terror State - Thank God for Nuclear Weapons - 22nd Aug 14
The Something for Nothing Society - Lifecycle of Bureaucracy - 22nd Aug 14
Hitting The ISIS Panic Button In The Middle East - 22nd Aug 14
US Stock Indices 10-Year Consolidation Patterns ... Upside Breakouts? - 22nd Aug 14
Gold and Silver Price Getting Set To Explode Higher - 22nd Aug 14
Deflation's Final Curtain Call - Part II - 22nd Aug 14 - Clif_Droke
Gold Big Picture: Most Important - 22nd Aug 14
How the “Uncertainty Factor” Drives Crude Oil Prices - 22nd Aug 14
Inflation, Interest Rates, and Why You Should Own Gold - 22nd Aug 14
U.S. Interest Rates Can Rise States Fed President - 22nd Aug 14
Why Emotional Discipline is Key to Trading Success - 21st Aug 14
Getting the Most Value from Your “Geriatric Cruiser” - 21st Aug 14
Mafia Boss Claims Stocks A Bubble, Buy Physical Gold and Silver - 21st Aug 14
Outrage! On The Beheading of Our Media Brother James Foley - 21st Aug 14
Stock Market Crash a Historical Pattern? - 21st Aug 14
The Black Box Economy - 21st Aug 14
The Bond Market is taking Advantage of Janet Yellen`s Dovishness - 21st Aug 14
Meet Your Investment Manager - 21st Aug 14
Gold and Silver Trading Alert as U.S. Dollar Soars to New Highs - 21st Aug 14
President Obama Strongest Statement Yet on Israel Gaza War - 20th Aug 14
Peak Gold? Russia To Surpass Australia As World No 2 Gold Producer - 20th Aug 14
AI, Robotics, and the Future of Jobs - 20th Aug 14
Stock Market Investors What's Your Exit? - 20th Aug 14
The Gold War - Thinker, Trader, Holder, Why? - 20th Aug 14
Ukraine Interest Rates Soars to 17.5% As External Debt Cannot be Repaid - 20th Aug 14
Rising Interest Rates and The End of Stimuland - 20th Aug 14
Inflation Watch: $245,000 to Raise a Child in United States - 20th Aug 14
Inside the Stunning Deal That Put Apple and IBM on the Same Side - 20th Aug 14
The US Gold in Fort Knox is Secure, Gone, or Irrelevant? - 19th Aug 14
Bitcoin Price On The Brink of a Possible Reversal - 19th Aug 14
Why Tesla Stock Price Will Double in the Next 12 Months - 19th Aug 14
Europe's Economic Malaise: The New Normal? - 19th Aug 14
The Coming U.S. Economic Collapse Will Trigger a Revolution - 19th Aug 14
Market Bubbles, Bubbles Everywhere - 19th Aug 14
This is Your Economic Recovery With and Without Drugs - 19th Aug 14
Stock Market Strong Start to Jackson Hole Week - 19th Aug 14
Iraq, Ukraine - Oh, What A Tangled Mess We Weave - 19th Aug 14
How to Apply Moving Averages as a Trading Tool - Video - 18th Aug 14
Why Short Stock Traders Are Losing Money This Week - 18th Aug 14
Stock Market Rally May be Complete - 18th Aug 14
Why Chinese Citizens Invest In Gold - 18th Aug 14
Palladium Reaches 13-Year High Over $900 oz as Gold Trading Volumes Surge 66% - 18th Aug 14
Understand and Profit from Surging European Volatility - 18th Aug 14
No Escape from The Dollar as The Currency Standard - 18th Aug 14
Stock Market New Highs Less Certain - 18th Aug 14
German Stock Market DAX About To Drop - 18th Aug 14
Stay on Board - Stock Market Big Picture - 18th Aug 14
Europe Economy Is Tanking, QE Is Coming - 18th Aug 14
Are You Ready for The Greatest Technology Revolution Yet? - 17th Aug 14
Why King Coal is Bigger than Oil or Gas - 17th Aug 14
U.S. Empire of Death and Lies - 17th Aug 14
Ukraine - Whose Spin Are We Caught Up In Here? - 17th Aug 14
Time Decay And No Escape For Abenomics - 17th Aug 14
India BSE SENSEX The Party Is Over In Bombay - 17th Aug 14
Stock Market Uptrend Looks Underway - 17th Aug 14
The Key Role Of Conspiracy Theory In Dumbing Down Society - 17th Aug 14
The Federal Reserve in Denial Mode - Bond Market Explained - 17th Aug 14

Free Instant Analysis

Free Instant Technical Analysis


Market Oracle FREE Newsletter

The Biggest lie in Stock Market History Revealed

What Housing Market Recovery? 10.7 Million Homes Still Have Negative Equity

Housing-Market / US Housing Feb 01, 2013 - 06:38 AM GMT

By: Profit_Confidential

Housing-Market

As I have written in these pages recently, the housing market is still missing the most important part: first-time homebuyers. We have large institutions buying up homes in bulk transactions instead of a good old-fashioned housing recovery where actual home occupants fuel the recovery.

Financial institutions like The Blackstone Group L.P. (NYSE/BX) are eating up the supply of foreclosed and empty homes and driving prices higher in the housing market. Why are they doing it? Because these big funds can’t get better returns elsewhere. Stock market? It’s too high. Bond market? It doesn’t pay enough. “Better buy cheap houses and get tenant money,” seems to be the new thinking.


But is the financial institutional buying of homes going to really change things for the U.S. housing market?

According to CoreLogic, 10.7 million homes or 22% of the entire residential households in the U.S. economy with a mortgage had negative equity in them at the end of the third quarter of 2012. And there are 5.29 million homes in the U.S. housing market that are either delinquent by 30 days or more or in foreclosure. (Source: Lender Processing Services, January 23, 2012.)

As I have been stressing in Profit Confidential, the so-called “recovery” in the housing market is artificial and doesn’t really do any good to the U.S. economy.

Robert J. Shiller, one of the founding fathers of S&P/Case Shiller Home Prices Index, agreed with my notion. At the World Economic Forum in Davos, Switzerland, he said “…it’s going up in the short run, what it will do in the longer run is hard to say. Maybe it will go down.” He also added that the housing market is still a “somewhat risky investment.” (Source: Wall Street Journal, “Shiller Says Housing Still Is ‘Somewhat Risky Investment,’ January 25, 2013.)

The truth of the matter is that it will take years if not decades for the housing market to get back to its peak. Maybe it never will. Back in the good old days, the U.S. government helped drive home prices higher through their lack of mortgage qualification oversight.

Today, we have billion-dollar institutions buying houses, pushing prices up.

I am very skeptical about the small rise in house prices and the increased optimism towards the housing market. Dear reader; let’s think about it this way. Today, the U.S. government announced that the U.S. economy contracted 0.1% in the fourth quarter of 2012—the first decline in gross domestic product (GDP) since the second quarter of 2009.

A surprise? Not for my readers. I’ve been writing for months that the U.S. economy is slowing. As crazy as it sounds, if the economy contracts again in the first quarter of 2013, we’ll officially be in a recession. Good luck to the housing market then.

Michael’s Personal Notes:

Quantitative easing hasn’t done much for the “small guy” in the U.S. economy other than create jobs in low-wage-paying sectors, while the “big guys” have enjoyed the propping up of stock prices. Why aren’t we looking at the Japanese economy as a lesson? After all, what happened there could very well become the fate of the U.S. economy.

Our Federal Reserve unleashed multiple rounds of quantitative easing and so did the Japanese central bank when the country’s crisis hit back in the 1990s. But after eight rounds of money printing, the Japanese economy is back in recession.

What happened in the Japanese economy as it printed money? Its currency, instead of going down in value against other world currencies, went up in value. But all that is changing now. Just look at this chart:

Chart courtesy of www.StockCharts.com

The Japanese yen has been rising in value since July of 2007. But starting in 2012, the yen collapsed as the Japanese decided to go “no holds barred” on quantitative easing. The Japanese yen declined in value significantly compared to other major currencies from a high of in October 2011 of 130 to 110 today.

Since the Federal Reserve announced its first round of quantitative easing, the U.S. dollar has only declined about 11% against a basket of other major world currencies. But, as we see from the chart above (the Japanese “lesson” as I call it), it does not take much for the market to lose faith in a country’s currency. The yen has fallen 15% in just over a year.

My skepticism about what the Federal Reserve is doing grows as I see the Japanese economy continue to suffer even after multiple rounds of quantitative easing and almost two decades of artificially low interest rates. Quantitative easing hasn’t worked for the Japanese economy; the chances of it working for the U.S. economy are bleak in my opinion.

Actually, by increasing its balance to almost $3.0 trillion, the Federal Reserve may have caused a bubble in the stock market.

On the other hand, the Federal Reserve may have no other option but to continue creating money, as the U.S. government needs the money to pay its bills—the government issues bonds, and the Federal Reserve buys the bonds and gives money to the government.

If quantitative easing can bring economic growth to the U.S. economy, then where is it? Why is the jobs market still tormented? Why are businesses stockpiling cash instead of reinvesting it? Why are real incomes declining? Why has the housing market become a playground for big financial institutions instead of homeowners? And why did the U.S. economy unexpectedly contract in the fourth quarter of 2012? Sounds more and more like Japan’s “lost decade” to me.

Where the Market Stands; Where it’s Headed:

Was Tuesday the top for the stock market? We’ll soon find out. On Wednesday, the Dow Jones Industrial Average hit a new post-credit crisis high of 13,969. Since then, the market has come down as companies earnings have disappointed and reality has set in: the U.S. economy contracted in the fourth quarter of 2012.

We’ll see where the market goes from here. But, as I have been writing, we are either at the top or close to it.

What He Said:

The year “2000 was a turning point of consumer confidence in high tech stocks. 2006 will be remembered as the turning point of consumer confidence in the housing market. That means more for-sale signs going up, longer time periods to sell homes, bloated for-sale inventory and eventually lower prices for homes. But this time, the turnaround in consumer confidence will have a bigger impact on the economy. Hold onto your seats, this is going to be a nail biter.” Michael Lombardi in Profit Confidential, August 24, 2006. Michael started talking about and predicting the financial catastrophe we began experiencing in 2008 long before anyone else.

Source

Michael Lombardi, MBA for Profit Confidential

http://www.profitconfidential.com

We publish Profit Confidential daily for our Lombardi Financial customers because we believe many of those reporting today’s financial news simply don’t know what they are telling you! Reporters are trained to tell you the news—not what it can mean for you! What you read in the popular news services, be it the daily newspapers, on the internet or TV, is the news from a “reporter’s opinion.” And there’s the big difference.

With Profit Confidential you are receiving the news with the opinions, commentaries and interpretations of seasoned financial analysts and economists. We analyze the actions of the stock market, precious metals, interest rates, real estate and other investments so we can tell you what we believe today’s financial news will mean for you tomorrow!

© 2013 Copyright Profit Confidential - 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.


© 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