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I predicted three months ago that we’d see a healthy spring selling season for housing. And boy is that forecast panning out!
Today, we learned that new home sales rose 2.2% from a month ago to a seasonally adjusted annual rate of 546,000 in May. That easily beat forecasts for 522,000. It was also the strongest reading in seven years.
Yesterday, we found out that existing home sales jumped 5.1% to a seasonally adjusted annual rate of 5.35 million. That was the best reading since November 2009, and it easily topped estimates for 5.26 million.
Median home prices also climbed almost 8% from a year earlier, while the “months supply at current sales pace” gauge of inventory sank to 5.1. That’s generally consistent with a modest sellers’ market.
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New home sales rose, and sales of used homes also showed healthy results. |
Funny thing is, the used home sales figures are actually even better than they look. That’s because the 2009 reading was bolstered by the imminent expiration of a federal first-time homebuyer tax credit. If you exclude that month, you haven’t seen existing home sales this strong in more than eight years.
Now those of you who have been following me for years know I was one of the biggest housing bears on the planet in the mid-2000s. I warned of a massive housing and mortgage market collapse well in advance, and advised subscribers to stay the heck away from anything and everything related to real estate.
It’s not all puppy dogs and unicorns today, either. Large student debt burdens and lackluster wage growth are still putting pressure on the first-time buyers segment. That’s prompting many people to keep renting or to buy cheaper property, such as condos or townhomes rather than single-family homes.
“Buyers are more willing to step up and buy.” |
But as I told the Washington Post in an interview yesterday, conditions are definitely better than they were during the bust. The deep psychological and financial damage caused by the collapse has subsided, lending standards are ever-so-gradually getting easier, and buyers are more willing to step up and buy.
The biggest threat on the horizon? Interest rates. Long-term rates are rising fast again, with the 30-year Treasury bond yield hitting a nine-month high of 3.22% today.
Mortgage rates are rising right alongside. And if that rise gets more and more vicious, it’s going to crimp affordability and knock more marginal buyers out of the market.
If there’s good news for home sellers, it’s that the meat of the spring selling season is over. That means the timing of the rise isn’t as bad as it could have been. But don’t lose sight of the cost of financing – as a real estate stock investor, a home buyer, or a home seller. It holds the key to where the real estate market goes next.
Now, I’d like to hear from you. Are you having trouble selling a home, or are you finding willing buyers out there? Have you purchased recently yourself, and if so, what was your experience? How worried are you about the rise in interest rates, in terms of its impact on real estate? Let me know over at the website.
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Tick tock, tick tock. The clock continues to count down to zero in Europe, and conversation about what comes next continued to dominate over at the Money and Markets website.
Reader Steven had some fun with sports metaphors, saying: “Speaking of ‘Hail Marys,’ Greece now has Russia in its backfield with a proposed oil pipeline and possible terminal. To quote Yogi Berra, ‘It ain’t over ’til it’s over.’ This is more entertaining than summer baseball.”
Reader Nerdmedic zeroed in on the other motivations for keeping Greece in the European fold, saying: “I am inclined to place more weight on the geopolitical aspect than the raw economics. It seems to be a case of which stokes the greater fear: Continued bad behavior from Greece or having a Russian encroachment in the Mediterranean?
“To create a U.S.-centric context, how much would we be willing to pay Canada to not permit a Russian base in Nova Scotia? The European metric may be similar.”
Meanwhile, Reader Cynicman said the whole affair has gone on long enough. His take: “There is a German saying, and I wish that Frau Merkel and her associates would pay attention to it. It goes: ‘Better a frightful end than endless fright.’
“It ought to be obvious that this is heading toward bankruptcy and a Grexit from the Euro. Why postpone the agony when delay will only worsen the situation. Greece has no more chance of paying for its needless past spending sprees than John Calvin has of being elevated to Sainthood by the Catholic Church.”
One other topic also had you discussing the ramifications over at the website: The latest wave of potential health care mergers.
Reader Chuck B. said: “Anthem is making a bid for Cigna, as Mike mentions. It seems to be another case of government actions resulting in Big Businesses becoming even bigger, as they consolidate to deal with increased regulatory red tape. No doubt the merger will also result in a sizable number of workers losing their jobs, as mergers usually do.”
Reader Ted F. also discussed the negative fallout from more deals, saying: “How can tens of billions of dollars be financed without massive cuts and rate increases? The money going into the insurers comes from the people being insured, and being invested. The outflow comes from investments to pay the costs covered by the policies.
“Add in the money borrowed to pay for acquisitions, and it can only mean higher rates or less benefits. I can’t see where merging assets and combining operations will result in billions of dollars in savings needed to pay for this.”
Thanks for weighing in. Greece has very little time left, and things are clearly coming to a head. The key question for U.S. investors is how markets worldwide react to a deal, or the lack thereof. We should all know by Thursday or Friday at the latest.
And when it comes to mergers, Chuck B. is right on target. Health care regulation, red tape, and costs have gone through the roof as a result of all the policies coming out of Washington. So one of the unintended consequences is to prompt companies to merge and consolidate – great news for their shareholders, but bad news for all of us who have to shop for health insurance. Another mess created by dumb D.C. policies … what else is new?
Want to add your voice to the mix if you haven’t already? Then here’s the link to get you pointed in the right direction.
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Greek banks needed another 1 billion euros from the European Central Bank to keep their doors open today. That puts total “emergency” aid at 89 billion euros, with the last couple days of negotiations between Greece and its European creditors looming.
Energy stock investors got rich yesterday … at least those who owned the pipeline operator Williams Cos. (WMB). The firm owns a network of pipeline and processing facilities that help transport natural gas from wellhead to market, and Energy Transfer Equity (ETE) offered to buy it for $48 billion.
So far, WMB has rejected ETE’s advances. But that didn’t stop WMB shares from surging 26% to an all-time high on the assumption a deal eventually gets done. Many analysts (myself included) expect to see much more takeover activity in the energy patch, yet another way you can make money from the greatest energy bargains in three decades!
The U.S. women’s soccer team beat Colombia 2-0 yesterday in Edmonton. That puts the U.S. into the quarterfinals at the Women’s World Cup, where we will play China on Friday.
When you watch a movie, how much attention do you pay to the sounds and music in the background? I’d argue in many cases, those sounds and songs help make the movie – raising the tension in a horror film, tugging at your heartstrings in a romance, you name it.
Well, Hollywood just lost one of the industry’s greats. James Horner, 61, died in an airplane crash near Santa Barbara, California. The composer provided the music for countless blockbuster films, from Titanic to Braveheart to Field of Dreams.
So what do you think of the latest Greek bank aid? The U.S.’s success in the Women’s World Cup? The latest mega-merger proposal in the energy patch? Let me know over at the website.
Until next time,
Mike Larson
{ 18 comments }
As long as interest rates are kept low, there will be decent to good activity, as first home buyers move on up and those just entering the market can have a chance to buy. Also, investors will continue to buy and rehab and resell, keeping the cycle going and improving the landscape. No one wants to rent when they can afford to buy and that is best for everyone, especially young families.
Yes Jean,interest rates,at todays rates,ok,what about tomorrow
balderdash!
I spent 30 years in the wood products business from 1969 to 1999 and really good years were 2 million plus new starts, so-so years were 1.4 to 1.5 million. Our population has obviously increased a lot in the intervening years, the inventory of homes is much older, and when you are talking about 522,000 new starts …. well, that really does speak to the economy and demand/ability to purchase big ticket items. We have a long way to go. And our fixation is on $15/hr minimum wage laws? Gee whiz.
What you recommend by
We bought a townhouse in 2008 and paid too much We wanted to move but it took two years to sell the townhouse the reason was we paid too much. We took a chance and bought a new construction home before the town house was sold We eventually got an offer and got rid of the townhouse During the year it took the builder to construct the new House the value of the property double doubles we had a choice for keeping house. Or flipping We kept the house. We paid less than half the asking price and at 3.69%. That was enough excitement for me
when does the next housing bust arrive? deja vu –all over again. thanks yogi.
Denver, Colorado has seen housing shortage for remodels or fix and flip. Some remodeling contractors are going to building new houses, because of it. Often prices being upped at the table to purchase. Good for sellers. Is it our marijuana law that is bringing imports to buy. The rail system expansion has much to do with those areas rising in value. I wonder if this is the last hurrah till it turns south for at least a breather. Many of those fix and flippers actually kept the homes for rentals. So if the market turns south it may accelerate south big time in panic by those investors.
In Canada the housing market is red hot in most of our cities and downright crazy in our 2 largest cities. In Canada’s largest city, Toronto the average resale price for a detach house has hit C$1.15 million up 18.2% from May, 2014 and prices in suburban cities that border Toronto are easily 10% higher or more over the same period. The market across the country is being fueled by record low interest rates which gives the illusion of affordability. Yet in a recent study close to 50% of the people polled indicated that they would be in serious financial trouble if their mortgage payments would rise by 10% which is a mere 1% rise in interest on a $200,000 mortgage (unlike the US, the longest Canadian can hold a fix rate mortgage before renewing is 10 years & 5 years being the most popular). Both Canada and the US have become so dependent of cheap money that any rise in long term interest rates will have a serious impact to the economy and housing prices. And when people who have trouble paying their mortgage because of job loss or higher interest rates the economy at large will begin to suffer.
The cycle of boom and now coming bust is when mortgage rates hit 5.5 percent. No one in their right mind should buy now. People who buy now at theses elevated prices because of low interest rates will not be able to sell their house without taking a hit. Do the math a 450k mortgage 4 percent 30 yr mortgage ..versus 5.5 percent payment. A large portion of buyers will not be able to qualify at these elevated levels.So prices will come down..
All this thanks to the Federal Reserve.
The same situation exists with the stock market . It is fully valued.. I hear the train coming down the tracks
Homes are selling pretty well in North Eastern Wisconsin, but only at still depressed bargain prices. We just sold our home in May (after nearly a year on the market) and took a 20% loss on our investment of seven years ago! I think the buyers got a really good deal! And I lost my hedge against higher interest rates when our 15 year 3% mortgage was paid off! I did not like closing out that “trade”.
It would help things if everyone would just stop talking about Greece and presidential candidates. Neither of these things has anything to do with anything!
housing should be discounted as a driver of the economy. Gone are the days when everything in the building of a house was MADE IN AMERICA. Today , almost everything is imported. That means, when a house is built, between $50,000 and maybe $150,000 flies out of the country. (Same thing with cars)-If you think this is beneficial to the country, think again.
Most of the lumber probably comes from U.S. or Canada, but much of the rest likely comes from Asia. Politicians have driven so many of the manufacturing jobs out of the country – and all in the name of “benefiting” people.
The $15 minimum wage…? When will progressives in government learn the true minimum wage and tax revenue are equal to zero when you drive employers out of business…?
When will the Fed learn that raising rates during a lackluster economy fueled primarily by cooked government data, somewhat higher than normal home sales, and very little else except overvalued stocks (ready to crash and burn any moment), is a sure-fire way to stab the same pin in multiple bubbles…?
Then the taxpayers who still have jobs and homes will be forced (probably at gunpoint) to bailout the failed banks through higher taxes.
Here’s the thing… “Wealth” is nothing more than money that you didn’t spend on Escalades, AIr Jordans and hoes and instead invested in your own business or gold (now that is cheap).
People who spend every penny they get their hands on the minute they get their hot little hands on it will never have “wealth” no matter how much “other peoples'” money you steal and redistribute to them.
And while I’m at it, I feel so much better knowing my feral government is far more interested in some stupid baseball team taking a peek at another team’s roster than it is about national security and keeping personnel and defense data out of the hands of foreign spies.
Then we have the mainstream media keeping most Americans focused on a silly flag rather than all the other important issues while the house of cards is beginning to lean a little further.
After spending the morning with my health insurance agent I now know for sure where any wealth the government lets me keep will be going.
Maybe health stocks will seem like good investments, but I’ll bet the politicians find a way to get their hands on much of the profits.
I am a real estate agent and investor working the Clearwater/ Pinellas Florida area. I agree with mike Stewart connecting the risre in interest rates to the backing away of the financed buyer. When financed people buy most buy not on total price but monthly payment. As rates rise, payments rise drying up the volume of activity amongst that crowd. I also see a great # of sellers are the ones that wanted to bail in ’08 and now see that prices are fitting to do so. Once that crowed of sellers filters through…who knows. However I don’t feel that the investor of single family rentals will bail with a housing fall, their mentalities are differant. Most are cash buyers and with deductible repairs done, they will sit and rent deducting to offset income for many years. And will be ready to set in again at the proper time.
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