Best of the Week
Most Popular
1.UK General Election BBC Exit Polls Forecast Accuracy - Nadeem_Walayat
2.UK General Election 2017 Seats Final Forecast, Labour, Conservative Lib-Dem, SNP - Nadeem_Walayat
3.UK General Election 2017 Forecast: Conservative 358, Labour 212 Seats - Nadeem_Walayat
4.Theresa May to Resign, Fatal Error Was to Believe Worthless Opinion Polls! - Nadeem_Walayat
5.UK House Prices Forecast General Election 2017 Conservative Seats Result - Nadeem_Walayat
6.The Stock Market Crash of 2017 That Never Was But Could it Still Come to Pass? - Sol_Palha
7.[TRADE ALERT] Write This Gold Stock Ticker Down Now - WallStreetNation
8.UK General Election Results Map 2017 vs 2015 vs Opinion Polls - Nadeem_Walayat
9.Orphaned Poisoned Waters,Severe Chronic Water Shortage Imminent - Richard_Mills
10.How The Smart Money Is Playing The Lithium Boom - OilPrice_Com
Last 7 days
Grenfell Fire: 600 of 4000 Tower Blocks Ticking Time Bomb Death Traps! - 22nd Jun 17
Car Sales About To Go Over The Cliff - 22nd Jun 17
LOG 0.786 support in CRUDE OIL and COCOA - 22nd Jun 17
More Stock Market Fluctuations Along New Record Highs - 22nd Jun 17
Understanding true money, Pound Sterling must make another historic low, Euro and Gold outlook! - 22nd Jun 17
Green Party Could Control Sheffield City Council Balance of Power Local Election 2018 - 22nd Jun 17
Ratio Combo Charts : Hidden Clues to the Gold Market Puzzle - 22nd Jun 17
Steem Hard Forks & Now People Are Making Even More Money On Blockchain Steemit - 22nd Jun 17
4 Steps for Comparing Binary Options Providers - 22nd Jun 17
Nether Edge & Sharrow By-Election, Will Labour Lose Safe Council Seat, Sheffield? - 21st Jun 17
Stock Market SPX Making New Lows - 21st Jun 17
Your Future Wealth Depends on what You Decide to Keep and Invest in Now - 21st Jun 17
Either Bitcoin Will Fail OR Bitcoin Is A Government Invention Meant To Enslave... - 21st Jun 17
Strength in Gold and Silver Mining Stocks and Its Implications - 21st Jun 17
Inflation is No Longer in Stealth Mode - 21st Jun 17
CRUDE OIL UPDATE- “0.30 risk is cheap for changing implication!” - 20th Jun 17
Crude Oil Verifies Price Breakdown – Or Is It Something More? - 20th Jun 17
Trump Backs ISIS As He Pushes US Onto Brink of World War III With Russia - 20th Jun 17
Most Popular Auto Trading Tools for trading with Stock Markets - 20th Jun 17
GDXJ Gold Stocks Massacre: The Aftermath - 20th Jun 17
Why Walkers Crisps Pay Packet Promotion is RUBBISH! - 20th Jun 17
7 Signs You Should Add Gold To Your Portfolio Now - 19th Jun 17
US Bonds and Related Market Indicators - 19th Jun 17
Wireless Wars: The Billion Dollar Tech Boom No One Is Talking About - 19th Jun 17
Amey Playing Cat and Mouse Game with Sheffield Residents and Tree Campaigners - 19th Jun 17
Positive Stock Market Expectations, But Will Uptrend Continue? - 19th Jun 17
Gold Proprietary Cycle Indicator Remains Down - 19th Jun 17
Stock Market Higher Highs Still Likely - 18th Jun 17
The US Government Clamps Down on Ability of Americans To Purchase Bitcoin - 18th Jun 17
NDX/NAZ Continue downward pressure on the US Stock Market - 18th Jun 17
Return of the Gold Bear? - 18th Jun 17
Are Sheffield's High Rise Tower Blocks Safe? Grenfell Cladding Fire Disaster! - 18th Jun 17
Globalist Takeover Of The Internet Moves Into Overdrive - 17th Jun 17
Crazy Charging Stocks Bull Market Random Thoughts - 17th Jun 17
Reflation, Deflation and Gold - 17th Jun 17
Here’s The Case For An Upside Risk In The Global Economy - 17th Jun 17
Gold Bullish on Fed Interest Rate Hike - 16th Jun 17
Drones Upending Business Models and Reshaping Industry Landscapes - 16th Jun 17
Grenfell Tower Cladding Fire Disaster, 4,000 Ticking Time Bombs, Sheffield Council Flats Panic! - 16th Jun 17
Heating Oil Bottom Is In.(probably) - 16th Jun 17
Here’s the Investing Reason Active Funds Can’t Beat Passive Funds—and It Worries Me a Lot - 16th Jun 17
Is There Gold “Hype” and is Gold an Emotional Trade? - 16th Jun 17
The War On Cash Is Now Becoming The War On Cryptocurrency - 15th Jun 17
The US Dollar Bull Case - 15th Jun 17
The Pros and Cons of Bitcoin and Blockchain - 15th Jun 17
The Retail Sector Downfall We Saw Coming - 15th Jun 17
Charts That Explain Why The US Rule Oil Prices Not OPEC - 15th Jun 17
How to Find the Best Auto Loan - 15th Jun 17
Ultra-low Stock Market Volatility #ThisTimeIsDifferent - 14th Jun 17
DOLLAR has recently damaged GOLD and SILVER- viewed in MRI 3D charts - 14th Jun 17
US Dollar Acceleration Phase is Dead Ahead! - 14th Jun 17
Hit or Pass? An Overview of 2017’s Best Ranked Stocks - 14th Jun 17
Rise Gold to Recommence Work at Idaho Maryland Mine After 60 Years - 14th Jun 17
Stock Market Tech Shakeout! - 14th Jun 17
The #1 Gold Stock of 2017 - 14th Jun 17

Market Oracle FREE Newsletter

The MRI 3D Report

Is a Bubble Developing in U.S. Housing Market?

Housing-Market / US Housing Mar 01, 2013 - 07:11 AM GMT

By: InvestmentContrarian

Housing-Market

George Leong writes: Recently in these pages, I talked about how the government, the Treasury, and the Federal Reserve were creating an artificial economy that was supported by cheap money and low interest rates.

One of the major benefactors of this cheap money was the housing sector, which is now sizzling hot. The median price of an existing home in the U.S. was $173,600 in January, up 12.3% from an average of $154,600 a year earlier. (Source: United States Census Bureau web site, last accessed February 27, 2013.)


Driving the renewed buying in the housing sector has been the environment of near-zero interest rates. The Federal Reserve has been injecting additional liquidity into the economy and mortgage market via its $85.0 billion in monthly bond purchases. The problem is that the low interest rates and easy money have driven the excess buying of homes and investment properties, as speculators jump into the housing sector, looking for deals and driving up home prices.

My concern is that the buying may be creating another potential bubble in the housing sector. You may not believe it, but I view this as a possibility. Housing starts in January showed some stalling. And now, with the $1.2-trillion “sequestration” budgetary cuts set to take effect tomorrow, the automatic $85.0 billion in annual budget cuts could have a widespread impact on the country and the economy, including program cuts, job losses, and economic chaos. The Congressional Budget Office (CBO) has warned that the U.S. economy could contract by 1.3% in the first half of this year if the sequester is allowed to take hold.

So let’s assume the sequestration does occur. With the associated likelihood of slowing in the economy, the Fed may have little choice but to maintain its low interest rate policy. The aftermath could be more buying in the housing market, but given the expected impact on jobs and the economy, we could be set for softness in the housing sector.

Home prices, representing another key piece of the housing sector, are edging higher; the S&P/Case–Shiller U.S. National Home Price Index, comprising the 20 largest U.S. metropolitan cites, increased a better-than-expected 6.8% in December, representing the eleventh straight up month.

While the higher prices suggest a healthier housing sector, I’m concerned with the fact that the rebound has largely been driven by low interest rates. What will happen to homeowners and speculators when interest rates begin to ratchet higher?

Here, you will have homeowners and investors, faced with higher payments, who may be forced to liquidate. The problem is that if many do this, it would create a bubble in the housing sector.

The chart of the SPDR S&P Homebuilders (NYSEArca/XHB) index below shows the upward trend in the housing market from the October 2011 bottom to its high just prior to the relapse. Technical indicators in the chart point to more potential downward moves to come.


Chart courtesy of www.StockCharts.com

While I’m not saying a housing sector bubble is inevitable, I am saying that there is a chance it could happen. As such, you want to be prepared for this possibility.

An investment strategy is to buy exchange-traded funds (ETFs) in housing that make money when the sector weakens. A couple of examples of ETFs you might consider are ProShares Short Real Estate (NYSEArca/REK) and Direxion Daily Real Estate Bear 3X Shrs (NYSEArca/DRV).

Source:http://www.investmentcontrarians.com/real-estate/is-a-bubble-developing-in-housing/1508/

By George Leong, BA, B. Comm.
www.investmentcontrarians.com

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

George Leong, B. Comm. is a Senior Editor at Lombardi Financial, and has been involved in analyzing the stock markets for two decades where he employs both fundamental and technical analysis. His overall market timing and trading knowledge is extensive in the areas of small-cap research and option trading. George is the editor of several of Lombardi’s popular financial newsletters, including The China Letter, Special Situations, and Obscene Profits, among others. He has written technical and fundamental columns for numerous stock market news web sites, and he is the author of Quick Wealth Options Strategy and Mastering 7 Proven Options Strategies. Prior to starting with Lombardi Financial, George was employed as a financial analyst with Globe Information Services. See George Leong Article Archives

Copyright © 2013 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

© 2005-2017 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

Catching a Falling Financial Knife