Federal Reserve | timiacono.com - Part 4

A Different Kind of U.S. Housing Bubble

The Marketwatch headline reads Investors Retreat from Housing Market and this story was no doubt prompted by yesterday’s existing home sales report (as detailed here) that was more cause for concern that investors – a key drivers behind the property market recovery in the U.S. – are moving away from the housing market after big price gains in recent years.

Here’s another look at the same development from this item at Mark Hanson’s real estate blog where all-cash sales are charted (there’s a good deal of overlap between all-cash sales and investors purchases, but, obviously, they’re not the same thing).

Of course, the other flashing red warning sign about the sustainability of the housing market rebound is the dearth of first-time homebuyers. Normally accounting for about 40 percent of all purchases, they have yet to crack the 30 percent mark in recent years, rising from just 26 percent to 28 percent last month.

After the steady rise in U.S. home prices over the last couple years, there’s been lots of talk about what we ‘Mericans are doing with all that new found home equity wealth and, while we’re nowhere near the euphoria seen eight or nine years ago when the last housing bubble had completely flowered, things seem to be working in that direction.

This Benzinga story harkens back to 2005 when I was still writing software while working out of a cubicle in Southern California and a few folks from the local Citibank wealth management office held a little seminar to tell us just how bad an idea it was to let our accumulating home equity just sit there, going so far as to dub it “dead money”.

3 Reasons To Tap Into Home Equity To Buy Stocks

As home values are rising, so are the number of Americans taking out second mortgages. When (and if) done right, it is a very savvy move in personal finance.

Here are three reasons those owning real estate in the United States should unleash the equity to buy stocks.

Whether this would be “very savvy”, just “savvy”, or really stupid won’t be known for some time to come, however, let’s not let that minor point get in the way.

The reasons are diversification, high stock dividend yields, and better liquidity with stocks.

What could go wrong?

They don’t say.

Rising home equity has also been a boon for retirees who, in many case, have a house that’s paid off and rising expenses that they really didn’t plan for in this era of super-low inflation.

(more…)

Existing Home Sales Fall, Weather Blamed

The National Association of Realtors reported that, for the third time in the last four months and the sixth time in the last seven months, existing home sales fell as bad winter weather, rising property prices, and low inventory all contributed to the decline.

Sales of previously owned homes dropped to the slowest pace since July 2012, from a seasonally adjusted annual rate of 4.62 million in January to 4.60 million February, with the median price rising from $188,900 to $189,000, now up 9.1 percent from a  year ago.

On a year-over-year basis, home sales are down 7.1 percent and this ranks as the steepest decline since May 2011, a time when annual comparisons were almost meaningless due to the impact of expiring home buyer tax credits the year before that artificially boosted sales.

The months of supply metric rose from 4.9 to 5.2 and more homes are being listed for sale as inventory rose from 1.88 million in January to 2.00 million in February.

Short sales and foreclosures accounted for 11 percent and 5 percent of February sales, respectively, down from a combined 25 percent share a year ago as the combination of fewer buyers (e.g., Wall St. investors) and sellers (e.g., banks with REOs to move) for this type of property continues to wane.

Interestingly, high student loan debt was cited for the ongoing drought of first-time buyers. NAR President Steve Brown noted, “The biggest problems for first-time buyers are tight credit and limited inventory in the lower price ranges. However, 20 percent of buyers under the age of 33, the prime group of first-time buyers, delayed their purchase because of outstanding debt. In our recent consumer survey, 56 percent of younger buyers who took longer to save for a downpayment identified student debt as the biggest obstacle.”

Once again, it’s worth pointing out that winter home sales data make for some pretty unreliable trends as actual sales are just a fraction of summer activity and upward seasonal adjustments are at extreme levels. The true nature of the U.S. housing market may not be known until well into summer since we are likely to see an unusually large bounce-back this spring due to the sever winter weather.

Here they are over at CNBC late yesterday afternoon talking about how Federal Reserve Chair Janet Yellen, in her inaugural press conference,  threw a cat amongst the pigeons by suggesting that interest rates might rise sooner than expected while offering no hint at dialing back on the central bank’s tapering of their money printing effort.

By nearly all accounts, Ms Yellen acquitted herself quite well, that is, up until the time that she began talking about the “considerable period” of time between the end of tapering and beginning of hikes to the Fed’s short term interest rates.

With about a half hour to go before trading begins in New York, stock futures are solidly down after a sell-off in Asia and some pretty big share declines in Europe. The central bank has probably already launched damage control plans that will appear in the form of modified speeches by Fed officials to downplay the clear impression that there’s no stopping the taper and that Fed rate increases will begin as soon as a year from now.

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