Profit Confidential ( — www.ProfitConfidential.com), an e-letter published by Lombardi Publishing Corporation, a 28-year-old consumer publisher that has served over one million customers in 141 countries, is raising doubt as to whether the fragile U.S. housing market will recover in the second half of 2014.
“Judging by the current state of the U.S. housing market, it’s easy to see why some think it’s the perfect time to buy a home; mortgage rates are historically low and home prices are still down significantly from their 2006 peak,” says economist and lead contributor Michael Lombardi. “But the fact is that potential home buyers are simply not coming into the housing market, and this is raising serious concerns about the ongoing housing slowdown.”
According to Lombardi, the reality is that the U.S. housing market has never recovered. Low mortgage rates and low home prices definitely provided some support, but now, as the Federal Reserve is pulling back on quantitative easing and mortgage rates are rising, home buyers are running away, he says.
He continues to explain that the housing market experienced a bump in 2012, but it was the result of institutional investors snapping up billions worth of empty homes in bulk. This gave the mainstream hope that a recovery in the U.S. housing market was in place.
“Investors buying houses to rent them will not create a healthy housing market recovery,” Lombardi adds. “In fact, in the first quarter of 2014, the homeownership rate in the U.S. declined to its lowest levels in almost two decades, falling to 64.8%. New-home sales are declining at a very ridiculous rate, further strengthening my argument that home buyers are just tapped out.” (Source: “Residential Vacancies and Homeownership in the First Quarter 2014,” U.S. Census Bureau web site, April 29, 2014; www.census.gov/housing/hvs/files/qtr114/q114press.pdf.)
In 2005, before the Great Recession, the annual rate of new homes sold in the U.S. was about 1.2 million. Between January and March of 2014, the annual rate of new homes sold in the U.S. declined almost 20%; in March, the rate was just 384,000. (Source: “Houses Sold - New One Family,” Stockcharts.com; https://stockcharts.com/h-sc/ui?s=$$HSNG1FAM.)
And homeowners with mortgages continue to struggle, says Lombardi. In the fourth quarter of 2013, the delinquency rate on single-family residential mortgages at all banks in the U.S. was 8.21%. Back in the fourth quarter of 2006, the delinquency rate stood at just two percent. (Source: “Delinquency Rate On Single-Family Residential Mortgages, Booked In Domestic Offices, All Commercial Banks,” Federal Reserve Bank of St. Louis Economic Research web site; http://research.stlouisfed.org/fred2/series/DRSFRMACBS, last accessed May 31, 2014.)
“The actions of the Federal Reserve might have a direct impact on the lending rate, but they can’t do anything to actually kick-start the housing market; that includes encouraging banks to lend and getting first-time home buyers to borrow,” Lombardi concludes. “We are far from a real recovery in the U.S. housing market, and if interest rates start rising as I predict and the economy gets softer, the housing market could actually start going the other way again.”
For more information on Profit Confidential, visit www.ProfitConfidential.com.
Founded in 1986, Lombardi Publishing Corporation, which has served over one million customers in 141 countries, is one of the largest consumer information publishers in the world. For more information on Lombardi Publishing Corporation, visit www.LombardiPublishing.com.
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