Tuesday, April 29, 2014

Still Stuck in the Mud. Keeping you updated on the market for the week of April 28, 2014.

Still Stuck in the Mud
Existing home sales are like a Jeep with bald tires stuck in a mud bog: The wheels spin furiously, but the Jeep goes nowhere. Not only does the Jeep go nowhere, it backslides.
So is the case with existing-home sales. For the seventh time in the past eight months, sales have backslid. Sales for March were 0.2% lower compared to February, posting at 4.59 million on an annualized rate. Year over year, sales are down 7.5%, which is the steepest rate of decline in nearly three years. Prices, on the other hand, continue to rise, with the median price moving up 5.4% to $198,000.
Now, new-home sales are adding to the sense of discouragement.
New-home sales had been trending mostly up over the past 12 months. That trend ground to a halt in March, with sales plunging 14.5% to a 384,000 annual rate , far below anyone's estimate.
Prices are an obvious drag on sales. The median price of a new home surged 11.2% to a record high $290,000. Year over year, prices are up 12.6%.
Prices in many markets are a baffling anomaly. They continue to rise, but they're not materially pulling in additional inventory. Admittedly, if you sell one home at a higher price, you'll likely have to buy another at a higher price, but rising prices tend to pull in more people willing to sell. In many markets this isn't occurring. Prices simply continue to rise, and continue to rise at a rate we thought would have abated by now.
Tight lending standards and higher mortgage rates are frequently fingered as culprits in stagnating home sales. Yes, lending standards are tighter than they were in 2006, but someone with a work history and a decent FICO score can still readily secure financing. As for rates, 4.5% continues to act as a ceiling on the 30-year fixed-rate loan. To be sure, rates spiked higher last summer, but the market should have adjusted to the new reality by now.
In the past, we've blamed a stagnating economy and weak job growth for sales failing to pick up pace. A dearth of new buyers entering the market is also to blame. One concern we have is ballooning student debt . A lot of young adults owe a lot on student-loan debt these days. That's making it tough for them to enter the housing market.
We remain positive, nonetheless. All markets are local, and all markets are complicated. There is a myriad of variables that influence value and establish trends. We think economic growth will overcome higher mortgage rates, and even higher home prices. Frustratingly, growth has been slow in coming about, but we still expect it to come sooner than later.


Date and Time
Pending Home Sales Index
Mon., April 28,
10:00 am, ET
0.5% (Decrease)
Important. Sales continue to stagnate on low inventory and rising prices. Both trends are unlikely to end soon.
S&P/Case-Shiller Home Price Index
Tues., April 29,
9.00 am, ET
0.6% (Increase)
Important. Price growth will likely accelerate over the next couple months.
Mortgage Applications
Wed., April 30,
7:00 am, ET
Important. Purchase applications have reversed course and point to slow sales growth.
Gross Domestic Product
(1st Quarter 2014)
Wed., April 30,
8:30 am, ET
1.0% (Annualized Growth)
Important. Sluggish economic growth explains sluggish job growth so far this year.
Employment Situation
Fri., May 2,
8:30 am, ET
Unemployment Rate: 6.6%
Payrolls: 210,000 (Increase)
Very Important. Monthly job growth must exceed 200,000 to sustain the economy.


How the Washington Post Got It All Wrong on Home Ownership
A recent article in the Washington Post was hardly favorable to housing. Basically, the article dispels the belief that a home is the best investment for most people. Other investments, such as stocks, are better investments over the long run.
The article misses the point. The home you own isn't an investment. Properly speaking, a home is an asset. It's an asset that satisfies a very basic need – it provides a place to live. That's not the proper role of an investment, which most people buy for immediate cash flow and to eventually sell at a higher price for a profit.
A home frequently satisfies the latter requirement: Over time, a home usually appreciate in value. We aver that a decade from now most homes across the nation could be sold for more than the purchase price today. In this regard, a home is an appreciating asset, but still not an investment.
A home is only an investment when it is rented to generate monthly cash flow or to be renovated and flipped for a profit. But in this case, a house is not a home. It's only a home to the family occupying it.
We might be parsing semantics here, but words matter, and the Washington Post got the words wrong.

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