Investing in Housing: Vote of no Confidence
By Ian Cooper
Where supply continues to outpace demand, stay away. Where mortgage rates continue to spike, don’t act surprised when buyers drop out of deals. Where the bulls meet to discuss a “mythical housing bottom,” laugh in their faces – something I did just yesterday with a “genius” neighbor of mine. He tells me the housing bottom is in place.
“We’re in take off mode from here”, he tells me, to which I responded with a hearty laugh in his face, and walk away laughing to myself at the absurdity of such a statement.
But sell he must…. Good riddance to him, I say.
The cold heartless truth to housing – we’re not bottoming. We won’t be close to bottoming until, at least, spring 2008. Then, if we’re lucky, we’ll begin rebounding. Not now… not as homebuilder confidence sinks lower… not as 30-year mortgage rates creep ever so closer to 7%… and not as home prices are expected to fall a more than expected 1.3% year over year.
Still shocking, though, are insistent bulls, talking heads, and real estate agents that’d tell you with a straight face that we’re bottoming. Take for example, the May 25, 2007 Forbes.com headline, “Housing Market Nears Bottom” and U.S. Treasury Secretary Henry Paulson’s on camera statement, “the U.S. housing market correction is ‘largely behind us.’”
Sure, mortgage rates are low by historical accounts, but consider the difference, nowadays, of paying 6.75% for a $400,000 mortgage instead of earlier 5.99% rates. That’s a big monthly payment differential. The 30-year, while it may not hit 7%, is still expected to creep higher.
Most depressing, homebuilder confidence just fell to its lowest rate since February 1991 on surging interest rates, and sky-high delinquency rates. Before divulging the number, please consider this. Any reading below 30 is an indication of poor conditions. Today’s read came in at 28 from 30 in May, according to the National Association of Homebuilders.
This “mythical housing bottom” you may have heard about… ignore it. Things are honestly bad.
Take Care-
Ian L. Cooper
Death Cross Trader
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