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Trouble Ahead for the U.S. Housing Market in 2014?

Housing-Market / US Housing Jan 07, 2014 - 05:24 PM GMT

By: Profit_Confidential

Housing-Market

Michael Lombardi writes: Will the gains that the U.S. housing market made in 2012 and 2013 continue into 2014? As you’ll read below, the biggest threat to the housing market is moving in the opposite direction—against housing.

Sure, the Case-Shiller S&P Home Price Index, which tracks prices in the U.S. housing market, shows an overall increase of 13.6% in home prices in the first 10 months of 2013 (see the chart below).



Chart courtesy of http://stockcharts.com/

But for growth in the housing market to continue, you need favorable market conditions for buyers. Unfortunately, the “favorable” conditions of 2011 through to 2013 are now becoming “unfavorable.”

Interest rates on mortgages are rising sharply. In November of 2013, the popular 30-year fixed mortgage rate tracked by Freddie Mac stood at 4.26%. In the same period a year ago, this rate was only 3.35%. (Source; Freddie Mac web site, last accessed January 3, 2013.) The interest rate on the standard 30-year fixed mortgage has gone up 27% in twelve months. And the higher mortgage rates go, the more the affordability for home buyers declines.

But rising interest rates are not the only factor weighing against the housing market in 2014.

Adjustable-rate mortgages (ARMs), which virtually disappeared after 2007, are making a big comeback.

According to DataQuick, in November of 2013, about 11% of all homes in Southern California were bought using ARMs. This has doubled in the area from the same period a year ago. (Source: Los Angeles Times, January 1, 2013.) ARMs have a fixed interest rate for a certain period of time, and then rates on the typical ARM adjust to market rates. What will happen to all those home buyers who purchased houses using ARMs over the past three years as interest rates increase? They will have added monthly costs—that’s what will happen.

Any softness for the U.S. housing market at this point will spell disaster for an already delicate U.S. economy. I’d be weary of the housing market recovery in 2014.

This article Trouble Ahead for Housing in 2014? was originally published at Profit Confidential

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.


© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


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