Lousy Economy Pulling Rug Out From Under Housing

Heads up, folks! It’s time for a very important housing market update from the front lines.

More than a year ago in these cyberpages, I told you that housing was stabilizing. All my indicators pointed to an improvement in conditions — less deadweight inventory on the market … increased sales rates … stabilization in pricing.

Many housing and housing-related stocks ramped after that alert came out. Some even hit multi-month and multi-year highs! And staying short during that period would’ve killed your portfolio.

But now?

The times they are a-changing once again. The reason? The lousy economy is pulling the rug out from under housing!

No Job = No House

Last year, I told you housing was bottoming out. Many commentators claimed government support was the only reason conditions were improving. Think home buyer tax credit here and all the mortgage modification programs.

My counter-argument?

Yes, the credit was boosting sales. And yes, mods were keeping some homes off the market, homes that would have previously been foreclosed on and listed for sale. But those forces were the icing on the cake, not the cake itself.

The “cake” was the plunge in pricing and the plunge in mortgage rates. They made housing an attractive investment again in some markets, and made ownership financially competitive again with renting.

But my view was always predicated on economic improvement. As long as massive job losses were gradually subsiding … and consumer confidence was returning … cheap house prices and cheap mortgage rates would offset other negative forces. Sure enough, for most of the past year, conditions gradually improved.

Without new jobs, the housing sector will continue to plummet.

But in the past few months we’ve seen the economy take a turn for the worse. Confidence is flagging and most importantly, we aren’t creating any real jobs! Sure, Census workers are banging on doors around the country and collecting government paychecks for a while.

The private sector, though, is barely hiring at all …

Many companies are still firing people left and right. The “all in” unemployment rate, that includes discouraged and underemployed Americans, is almost 17 percent!

So I don’t care how low prices fall, or how cheap mortgage financing gets. No job = no house.

Here Comes the
Housing Double-Dip

The latest housing numbers clearly show this new dynamic playing out …

Existing home sales dropped 2.2 percent in May, compared with expectations for a gain of 6 percent. The supply of homes on the market actually rose slightly from year-ago levels to 3.89 million.
New home sales collapsed a whopping 32.7 percent in May to a seasonally adjusted annual rate of 300,000. That’s the lowest level in the history of data collection, which goes back to 1963. Prices slid almost 10 percent from a year earlier.
The National Association of Home Builders’ index, which tracks how builders perceive market conditions, tanked to 17 in June from 22 in May. That was much worse than the economists were expecting, and it was the sharpest drop in any month since November 2008.

Slumping housing demand is pushing lumber inventories higher and prices lower.

The Mortgage Bankers Association’s purchase loan application index just touched 167.80. That was down from 270.70 a year earlier and the worst reading since 1997.

Oh, and one of my favorite indicators — the price of lumber? It’s taking an Acapulco cliff dive! Lumber futures prices have plunged from $327 per 1,000 board feet in late April to around $180 now. Folks, that’s a 45 percent collapse in two months!

Bottom line?

It’s once again time to ramp up the search for short sale and put option candidates in housing-related industries. That’s precisely what I’ll be doing in some of my services.

Meanwhile, if you haven’t already considered liquidating some of your stock positions and paring down your risk, don’t wait any longer. The risk of a double-dip in housing and the economy is rising fast. And if you want to find out how to adjust your portfolio for only 27 cents a day, just click here.

Until next time,

Mike

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