Best of the Week
Most Popular
1. Investing in a Bubble Mania Stock Market Trending Towards Financial Crisis 2.0 CRASH! - 9th Sep 21
2.Tech Stocks Bubble Valuations 2000 vs 2021 - 25th Sep 21
3.Stock Market FOMO Going into Crash Season - 8th Oct 21
4.Stock Market FOMO Hits September Brick Wall - Evergrande China's Lehman's Moment - 22nd Sep 21
5.Crypto Bubble BURSTS! BTC, ETH, XRP CRASH! NiceHash Seizes Funds on Account Halting ALL Withdrawals! - 19th May 21
6.How to Protect Your Self From a Stock Market CRASH / Bear Market? - 14th Oct 21
7.AI Stocks Portfolio Buying and Selling Levels Going Into Market Correction - 11th Oct 21
8.Why Silver Price Could Crash by 20%! - 5th Oct 21
9.Powell: Inflation Might Not Be Transitory, After All - 3rd Oct 21
10.Global Stock Markets Topped 60 Days Before the US Stocks Peaked - 23rd Sep 21
Last 7 days
Ravencoin RVN About to EXPLODE to NEW HIGHS! Last Chance to Buy Before it goes to the MOON! - 21st Oct 21
Stock Market Animal Spirits Returning - 21st Oct 21
Inflation Advances, and So Does Gold — Except That It Doesn’t - 21st Oct 21
Why A.I. Is About To Trigger The Next Great Medical Breakthrough - 21st Oct 21
Gold Price Slowly Going Nowhere - 20th Oct 21
Shocking Numbers Show Government Crowding Out Real Economy - 20th Oct 21
Crude Oil Is in the Fast Lane, But Where Is It Going? - 20th Oct 21
3 Tech Stocks That Could Change The World - 20th Oct 21
Best AI Tech Stocks ETF and Investment Trusts - 19th Oct 21
Gold Mining Stocks: Will Investors Dump the Laggards? - 19th Oct 21
The Most Exciting Medical Breakthrough Of The Decade? - 19th Oct 21
Prices Rising as New Dangers Point to Hard Assets - 19th Oct 21
It’s not just Copper; GYX indicated cyclical the whole time - 19th Oct 21
Chinese Tech Stocks CCP Paranoia, VIES - Variable Interest Entities - 19th Oct 21
Inflation Peaked Again, Right? - 19th Oct 21
Gold Stocks Bouncing Hard - 19th Oct 21
Stock Market New Intermediate Bottom Forming? - 19th Oct 21
Beware, Gold Bulls — That’s the Beginning of the End - 18th Oct 21
Gold Price Flag Suggests A Big Rally May Start Soon - 18th Oct 21
Inflation Or Deflation – End Result Is Still Depression - 18th Oct 21
A.I. Breakthrough Could Disrupt the $11 Trillion Medical Sector - 18th Oct 21
US Economy and Stock Market Addicted to Deficit Spending - 17th Oct 21
The Gold Price And Inflation - 17th Oct 21
Went Long the Crude Oil? Beware of the Headwinds Ahead… - 17th Oct 21
Watch These Next-gen Cloud Computing Stocks - 17th Oct 21
Overclockers UK Custom Built PC 1 YEAR Use Review Verdict - Does it Still Work? - 16th Oct 21
Altonville Mine Tours Maze at Alton Towers Scarefest 2021 - 16th Oct 21
How to Protect Your Self From a Stock Market CRASH / Bear Market? - 14th Oct 21
The Only way to Crush Inflation (not stocks) - 14th Oct 21
Why "Losses Are the Norm" in the Stock Market - 14th Oct 21
Sub Species Castle Maze at Alton Towers Scarefest 2021 - 14th Oct 21
Which Wallet is Best for Storing NFTs? - 14th Oct 21
Ailing UK Pound Has Global Effects - 14th Oct 21
How to Get 6 Years Life Out of Your Overclocked PC System, Optimum GPU, CPU and MB Performance - 13th Oct 21
The Demand Shock of 2022 - 12th Oct 21
4 Reasons Why NFTs Could Be The Future - 12th Oct 21
Crimex Silver: Murder Most Foul - 12th Oct 21
Bitcoin Rockets In Preparation For Liftoff To $100,000 - 12th Oct 21
INTEL Tech Stock to the MOON! INTC 2000 vs 2021 Market Bubble WARNING - 11th Oct 21
AI Stocks Portfolio Buying and Selling Levels Going Into Market Correction - 11th Oct 21
Stock Market Wall of Worry Meets NFPs - 11th Oct 21
Stock Market Intermediate Correction Continues - 11th Oct 21
China / US Stock Markets Divergence - 10th Oct 21
Can US Save Taiwan From China? Taiwan Strait Naval Battle - PLA vs 7th Fleet War Game Simulation - 10th Oct 21
Gold Price Outlook: The Inflation Chasm Between Europe and the US - 10th Oct 21
US Real Estate ETFs React To Rising Housing Market Mortgage Interest Rates - 10th Oct 21
US China War over Taiwan Simulation 2021, Invasion Forecast - Who Will Win? - 9th Oct 21
When Will the Fed Taper? - 9th Oct 21
Dancing with Ghouls and Ghosts at Alton Towers Scarefest 2021 - 9th Oct 21
Stock Market FOMO Going into Crash Season - 8th Oct 21
Scan Computers - Custom Build PC 6 Months Later, Reliability, Issues, Quality of Tech Support Review - 8th Oct 21
Gold and Silver: Your Financial Main Battle Tanks - 8th Oct 21
How to handle the “Twin Crises” Evergrande and Debt Ceiling Threatening Stocks - 8th Oct 21
Why a Peak in US Home Prices May Be Approaching - 8th Oct 21
Alton Towers Scarefest is BACK! Post Pandemic Frights Begin, What it's Like to Enter Scarefest 2021 - 8th Oct 21
AJ Bell vs II Interactive Investor - Which Platform is Best for Buying US FAANG Stocks UK Investing - 7th Oct 21
Gold: Evergrande Investors' Savior - 7th Oct 21
Here's What Really Sets Interest Rates (Not Central Banks) - 7th Oct 21

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

U.S. Housing Market Will Continue to Suffer in 2010

Housing-Market / US Housing Dec 16, 2009 - 02:28 PM GMT

By: Oakshire_Financial

Housing-Market

Best Financial Markets Analysis ArticleHousing prices aren’t going anywhere. Not for a long, long time.

This is not information that I am excited to be admitting to, as I am a homeowner and am currently in the process of buying another. Unfortunately, I have had way too many cold buckets of reality dumped on me over the years to ignore such a simple truth.


Now’s the time to buy. If you can.

Generally, interest rates and housing prices have a negative correlation. That is, one goes up and the other goes down. Due to the fact that Americans, spend-happy as they tend to be, paradoxically would ideally like to budget their spending, a guaranteed monthly payment is a attractive. To this end, mortgages are designed to provide a predictable, steady monthly payment that is based on the home price and, just as importantly, the interest rate.

When most prudent homebuyers go shopping, they more than likely going into the operation with the knowledge of their maximum affordable payment per month rather than selecting a random home value to chase after. After all, there’s deals out there on multi-million dollar properties, but just because it’s a deal doesn’t mean that you can afford $42,000 per month.

Currently, interest rates are low and housing prices are also relatively low. This is not a common occurrence in general, and usually occurs only in these recessions that we find ourselves in (you can call it a “recovery” if you want… but just because my Nissan goes 160mph doesn’t make it a Ferrari). This means it is an ideal time to buy if you happen to be looking and able. The problem is that most Americans are in one of two situations:

Number one: They cannot afford to buy a new house. Period.

Number two: They already own a home, and in order to purchase a new one, they must sell their current residence. However, the “deal” they may have found elsewhere is often offset by the fact that the home they are selling has depreciated as well.

Therefore, we have a stagnant market that is having a difficult time creating demand, even with ridiculous government stimuli.

Interest rate issues.

Even if demand begins to creep in over the next year, interest rate increases are on the horizon. This will begin to stifle prices from rising significantly.

For example, someone who has a 30-year fixed 5% mortgage with a balance of $250,000 is paying $1,342.05 per month. If, one year later, someone comes along and is able to afford the same $1,342.05 per month, but is dealing with a 5.5% rate, this would only allow them to borrow $236,364.93.

Assuming no improvements have been done to the house and demand has remained steady, the real value of this home has dropped by more than $13,000. This is a matter of arithmetic, not opinion.

You may be thinking, “what if the Fed doesn’t touch interest rates?” Well, this is a fair statement, and they may very well leave rates alone. However, if we are in a position 12-18 months from now where we cannot raise interest rates, then that would imply that the economy, particularly the stock markets and labor markets, have not improved. We then see a whole new set of problems with the same result – low (or at best unchanged) housing prices.

Homebuilder sentiment is declining.

On Tuesday, US homebuilder sentiment was expected to come in at 18 (a number less than 50 implies that builders have an unfavorable outlook on sales). The numbers came in below that already basement-level number to a 16.

NAHB’s chief economist David Crowe pointed to the same reasons outlined earlier in this article, namely the highest unemployment rate in more than a quarter-century. Accurate analysis.

To buy or not to buy. Or rent.

Another issue is the comparison of alternatives.

When you’re looking for a place to live, you have two basic choices: buy or rent.

In the long run, generally it is a better financial decision to buy property than to rent it, because some value is retained. Also, mortgage payments tend to be lower than the rent of a comparably sized home.

For the same reason that prospective home seekers are worried about their income (hesitant to buy or lock into a high rental lease), those who own rental properties are more likely to lower rent in order to ensure their units are generating maximum profits. Particularly if they are upside down on their rental property mortgage. Round and round we go.

Conclusions and market action

To top this all off, any demand that we have seen in the housing market has come mostly because of government intervention. A huge first-time buyer tax credit coupled with government purchases of mortgage-backed securities and mortgage modification programs has masked how poor the housing market actually is, as well as the extent of the real declines in value many homeowners are experiencing.

All of these programs will have to come to an end. When this happens, many experts are estimating that broad market housing prices will decline by another 10%.

For these reasons, I’m staying away from homebuilding stocks for a while. There are plenty of other opportunities out there, and there’s no reason to throw your money into something that has extremely limited upside potential.

For the record, if you’re in the market for an actual home (at least one that you plan to keep for more than a few years), you have a much better chance at earning money on your investment.

John Whitehall
Analyst, Oakshire Financial

Oakshire Financial originally formed as an underground investment club, Oxbury Publishing is comprised of a wide variety of Wall Street professionals - from equity analysts to futures floor traders – all independent thinkers and all capital market veterans.

© 2009 Copyright Oxbury Research - 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.

Oakshire Financial Archive

© 2005-2019 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