Monday, August 5, 2013

Housing Shifts Into Reverse

Mike Whitney
August 4, 2013
 
Here are a few headlines you might want to mull-over before you plunk 20 percent down on that $500,000 Tudor in Rancho Mirage:

“Mortgage Applications Drop for Seventh Straight Week”,  “Homeownership slides to 18 year low”,  “Investors start to move out of housing”,  “Sellers Worry Rising Rates Will Lower Demand”,  “PE Scrambles To Exit Housing Market”,  “Higher mortgage rates lead to softer home demand, Beazer exec says.”

Of course, all you’re reading is stories about the 12.2% year-over-year price surge that’s started the buzz about the next housing bubble.  And it’s true too, housing prices have gone up.  Financial manipulation and corporate propaganda DO work, even in an no-growth, high unemployment economy where half the college graduates under 30 are shackled to loans they’ll never repay, where one-in-six people scrape by on food stamps, and where “four out of 5 U.S. adults struggle with joblessness, near-poverty or reliance on welfare for at least parts of their lives.” (AP News) Hurrah, for the American Dream! Hurrah, for propaganda!
So, what is the truth about housing, aside from the fact that the fundamentals (wage growth and low unemployment) are weak, weak, weak?

Conditions in the US housing market are rapidly deteriorating. Mortgage applications dropped for the seventh weeks straight while refinance activity is down 57% from its peak. Refis are now at a two year low having slipped another 4 percent in the last week in July. The rate-sensitive housing industry has been pummeled by the Fed’s announcement in June that it planned to scale back its asset purchases (QE) by the end of the 2013 ending the program sometime in 2014. The announcement triggered a sharp selloff of US Treasuries which pushed mortgage rates more than a full percentage point higher in less than a month. The 30-year “fixed” mortgage rate is now 4.58 percent, a mere 10 basis points below a two-year high hit earlier in July. The higher rates have dampened demand by prospective buyers who have decided to either hold off on their purchase or abandon their search for a home altogether.   Either way, fewer mortgage apps mean reduced sales in the months ahead.  If sales fall, prices will follow.

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