Best of the Week
Most Popular
1. TESLA! Cathy Wood ARK Funds Bubble BURSTS! - 12th May 21
2.Stock Market Entering Early Summer Correction Trend Forecast - 10th May 21
3.GOLD GDX, HUI Stocks - Will Paradise Turn into a Dystopia? - 11th May 21
4.Crypto Bubble Bursts! Nicehash Suspends Coinbase Withdrawals, Bitcoin, Ethereum Bear Market Begins - 16th May 21
5.Crypto Bubble BURSTS! BTC, ETH, XRP CRASH! NiceHash Seizes Funds on Account Halting ALL Withdrawals! - 19th May 21
6.Cathy Wood Ark Invest Funds Bubble BURSTS! ARKK, ARKG, Tesla Entering Severe Bear Market - 13th May 21
7.Stock Market - Should You Be In Cash Right Now? - 17th May 21
8.Gold to Benefit from Mounting US Debt Pile - 14th May 21
9.Coronavius Covid-19 in Italy in August 2019! - 13th May 21
10.How to Invest in HIGH RISK Tech Stocks for 2021 and Beyond - Part 2 of 2 - 18th May 21
Last 7 days
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
CISCO 2020 Dot com Bubble Stock vs 2021 Bubble Tech Stocks Warning Analysis - 6th Oct 21
Precious Metals Complex Searching for a Bottom - 6th Oct 21
FB, AMZN, NFLX, GOOG, AAPL and FANG+ '5 Waves' Speaks Volumes - 6th Oct 21
Budgies Flying Ability 10 Weeks After wings Clipped, Flight Feathers Cut Grow Back - 6th Oct 21
Why Silver Price Could Crash by 20%! - 5th Oct 21
Will China's Crackdown Send Bitcoin's Price Tumbling? - 5th Oct 21
Natural Gas News: Europe Lacks Supply, So It Turns to Asia - 5th Oct 21
Stock Market Correction: One More Spark to Light the Fire? - 5th Oct 21
Fractal Design Meshify S2, Best PC Case Review, Build Quality, Airflow etc. - 5th Oct 21
Chasing Value with Five More Biotech Stocks for the Long-run - 4th Oct 21
Gold’s Century - While stocks dominated headlines, gold quietly performed - 4th Oct 21
NASDAQ Stock Market Head-n-Shoulders Warns Of Market Weakness – Critical Topping Pattern - 4th Oct 21
US Dollar on plan, attended by the Gold/Silver ratio - 4th Oct 21
Aptorum Group - APM - High RIsk Biotech Stocks Buy, Sell, Hold Investing Analysis for the Long-run - 3rd Oct 21
US Close to Hitting the Debt Ceiling: Gold Doesn’t Care - 3rd Oct 21
Powell: Inflation Might Not Be Transitory, After All - 3rd Oct 21
Original Oculus VR HeadSet Rift Dev Kit v1 Before Facebook Bought Oculus - 3rd Oct 21
Microsoft Stock Valuation 2021 vs 2000 Bubble - Buy Sell or Hold Invest Analysis - 1st Oct 21
How to profit off the Acquisition spree in Fintech Stocks - 1st Oct 21
�� Halloween 2021 TESCO Shopping Before the Next Big Panic Buying! �� - 1st Oct 2
The Guide to Building a Design Portfolio Online - 1st Oct 21
BioDelivery Sciences International - BDSI - High RIsk Biotech Stocks Buy, Sell, Hold Investing Analysis for the Long-run - 30th Sep 21
America’s Revolving-Door Politics Behind the Fall of US-Sino Ties - 30th Sep 21
Dovish to Hawkish Fed: Sounds Bearish for Gold - 30th Sep 21
Stock Market Gauntlet to the Fed - 30th Sep 21
Should you include ESG investments in your portfolio? - 30th Sep 21
Takeda - TAK - High RIsk Biotech Stocks Buy, Sell, Hold Investing Analysis for the Long-run - 29th Sep 21
Stock Market Wishing Away Inflation - 29th Sep 21
Why Workers Are NOT Returning to Work as Lockdown's End - Wage Slaves Rebellion - 29th Sep 21
UK Fuel PANIC! Fighting at the Petrol Pumps! As Lemmings Create a New Crisis - 29th Sep 21
Gold Could See Tapering as Soon as November! - 29th Sep 21

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

Has the U.S. Housing Market Hit the Wall?

Housing-Market / US Housing Mar 05, 2014 - 10:29 AM GMT

By: Carl_R_Tannenbaum

Housing-Market

The housing market began 2013 with a great deal of momentum, but recent data on this sector has moderated considerably. It would be easy to blame this trend on the weather, but there may be more to the housing story. The contribution of this sector to economic growth going forward may not be as robust.

Construction and sales fell to a very low base level during the depth of the recession, and therefore were able to show outsized gains as the recovery began. Residential investment was one of the biggest contributors to gross domestic product growth in 2011 and 2012.



Progress was attributable to a favorable confluence of factors. Supply conditions are much clearer than they were immediately after the crisis, as the industry has done a steady job of working down the backlog of foreclosed homes. The presence of these units made it difficult for certain markets to reach new price equilibria. Sales of foreclosed homes made up 11% of existing home sales in January, down from 14% a year ago and 22% in 2012.

On the demand side, household balance sheets are in much better condition, and wealth gains have been used as down payments by some purchasers. Low mortgage rates and heavy underwriting from the FHA (which insures mortgages with low down payments) helped add to the momentum. Investors played a role, too, by scooping up vast tracts of single family homes and turning them out for rental.

These trends were expected to continue for some time, but the charts below clearly show that things levelled off in mid-2013, long before the weather in much of the country turned ugly.



Sales of existing homes have slipped in five of the past six months, and sales of new homes are at the same level they reached six months ago. The Pending Home Sales Index, a leading indicator of home purchases, dropped in three of the four months ending in January.

Coincident with the slowing in sales has been sluggishness in the pace of permit issuance for new construction. The National Association of Home Builders notes that supply constraints for labor, materials and lots hindered home building activity in late 2013. But the main drivers behind the lost energy in the housing sector involve credit conditions.

The first of these is mortgage rates. The recent 30-year fixed rate mortgage at 4.3% is down slightly from the peak in January 2014, but it is still nearly 110 basis points higher than the low posted in May 2013. With the Federal Reserve tapering its asset purchases, it seems unlikely that borrowing rates will retreat much further.



The second is the tightening of mortgage underwriting standards, evident in the January 2014 Senior Loan Officer Survey. This came as a bit of a surprise, given that underwriting standards for almost all other types of credit have eased considerably over the past two years.

The reversion may reflect the impact of new regulations pertaining to “qualifying mortgages” issued by the Consumer Financial Protection Bureau, effective as of January 10, 2014. Lenders must now consider eight factors to establish the borrower’s ability to repay the loan. Failure to do so can leave the lender liable for loss even if the loan is later sold.

The biggest hurdle to cross is the 43% debt-to-income ratio of the borrower, with debt inclusive of student loans, car loans, credit card debt and all other loans. Given employment conditions, it takes a much longer time for first-time buyers to reach a point of qualification.

These rules are certainly well-intentioned and aim to reduce the agony of foreclosure endured by millions over the last several years. But there is little doubt that they will be a significant limitation to some prospective purchasers.

While an improvement in employment conditions and steady mortgage rates should help housing activity, it appears that the reversion from homeownership to rental is not yet complete. So it is not surprising that sales and construction of single family units are diminishing.

Of course, strong employment and strong markets could change this dynamic, which is what the industry is hoping for. But housing finance has still not reached its “new normal.” And until it does, neither will home sales and home construction.

Carl R. Tannenbaum

Chief Economist

http://www.northerntrust.com

Carl Tannenbaum is the Chief Economist for Northern Trust. Prior to joining Northern Trust, Carl led a team at the Federal Reserve Bank of Chicago whose charter was to analyze financial risk, its implication for the broad economy and policy choices to address it. He served as the head of the entire Federal Reserve System's risk group in Washington for a year that ended in March, working closely with Federal Reserve System Governors and senior officials.

Copyright © 2014 Carl R. Tannenbaum

The opinions expressed herein are those of the author and do not necessarily represent the views of The Northern Trust Company. The Northern Trust Company does not warrant the accuracy or completeness of information contained herein, such information is subject to change and is not intended to influence your investment decisions.


© 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