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http://www.marketwatch.com/story/housing-pain-could-halt-stocks-gain-2014-04-07?dist=lbeforebell

Housing pain could halt stocks’ gain

Opinion: Weaker demand for real estate could spread to other asset classes

By Jeff Reeves

With talk about a 1987-like stock-market crash, geopolitical unrest in Ukraine and the risk of a debt crisis in China, investors are starting to get jittery.

The S&P 500’s SPX -1.08% outsized gain of 30%-plus last year certainly can’t be repeated. And if the first quarter is any indication, not many investors will make much money by owning the benchmark index.

For the record, I do not think a major correction is in order for equities. I expect the volatility we’ve seen this year — something that’s held back the S&P 500 to a gain of only 1.3% — is pretty much what’s in store for the rest of 2014. I predict we’ll finish with the S&P 500 around 1,950 on Dec. 31. (It’s now at about 1,897.)

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U.S. employers stepped up their pace of hiring in March

But while I’m not too worried about stocks, I do think the housing market may take a hit. And the fallout of negative sentiment could affect other assets and consumer spending as a result.

A big narrative of our economic recovery has been a resurgent housing market. As a result, a slowdown or decline could be bad news for investors of all stripes.

Here’s what I think investors and homeowners should be watching in the real estate market, and the warning signs worth noting.

Interest rates

As it becomes increasingly clear that the Federal Reserve is on track to raise key interest rates in the next 12 to 18 months, the rate on mortgages has been creeping higher too.

Mortgage rates were elevated in March, and interest rates are flirting with a monthly average of 4.5% on a 30-year fixed – which, according to Freddie Mac mortgage survey data, would mark the highest levels since July 2011.

Consider that a $200,000 loan at a 3.5% rate works out to about $900 per month, while a 4.5% rate is just shy of $1,015 — a difference of $115 monthly for the same home. And for more expensive houses, the difference is even more dramatic.

This additional cost burden could price people into smaller homes or deter them from shopping altogether. And, remember, this recent rate increase has occurred even without a Fed-driven rate hike behind it, so mortgage interest rates could move significantly higher across the coming months.

And let’s not even get into what an increase in rates could do to those without fixed mortgages who will see payments adjust up as a result.

The bottom line is that higher borrowing costs will undoubtedly cool some of the demand for housing by the time we hit the key house-shopping months of spring and summer 2015.

Prices fueled by low supply

Sure, numbers released last week from data firm CoreLogic showed yet another uptick in prices nationwide. Specifically, February prices rose at the fastest year-over-year pace since 2006.
But that growth was propelled by a very tight housing supply much more than demand.

Through February, housing starts had fallen for three straight months, in part, due to the harsh winter weather. And while January’s numbers were revised up, the massive 11.2% dip still has had a big effect on inventory during the all-important spring buying season.

Additionally, there’s a chance that March could continue that trend, too, keeping supply limited for some time.

And while permits did surge in February, keep in mind the rise for single-family housing permits was just 1.8%. It was a multifamily-permit surge of 24.3% that many pundits latched on to as a hopeful sign, but the details don’t exactly point to delayed single-family starts picking up in earnest when the latest numbers hit.

Demand is cooling

It’s also worth noting that in that same report, CoreLogic’s chief economist predicted that “price increases should moderate over the next year as home equity releases pent-up supply.”

In other words, there are a lot of people who have been sitting on their homes waiting for them to rebound in value and may look to get out while the getting is good.

Separately, the National Association of Realtors said existing-home sales declined 0.4% in February to the slowest pace since 2012.

Last but not least, remember that part of the demand that appeared in 2010 and 2011 was from prospective buyers who simply couldn’t afford overly inflated prices. But now that one in six housing markets are back to pre-recession levels, the simple nature of rising prices has once again priced some Americans out of a home.

Even if interest rates were to remain relatively stable for the next year, which I doubt, these downward pressures on demand are worth noting.

Location, location, location

Of course, these are broad trends and it’s impossible to make a one-size-fits-all analysis of the housing market. Based on your specific property and community, the picture may be a heck of a lot better … or a heck of a lot worse.

But it’s worth noting that by and large, prices have been supported by tight supply more than red-hot interest in home ownership again. That doesn’t leave a lot of margin for error as we face higher interest rates and home prices that have rebounded to peak levels in many places.

I’ll admit that much of the “shadow inventory” of foreclosed homes has been largely eaten up, with a 35% drop in foreclosure inventory over last year worth about $70 billion. That’s undeniably a good thing.

However, passing the foreclosure kidney stone does not mean the housing market is now risk-free or that price appreciation is guaranteed. Investors who forget that do so at their own peril.

So long as interest rates don’t spike and Americans don’t flood the market with houses for sale, things will stay pretty stable.

But investors who are simply blaming the weather and expecting housing to never tumble again should start taking a more skeptical look at the numbers.

Because if housing gets the sniffles, you can expect many other asset classes to come down with a cold.

It is now a question of when the massive inflationary tsunami will completely obliterate the capacity of the existing small property owners to pay their bills and transfer all wealth to the ruling plutocracy.They don’t want you to be productive anymore,because they don’t really care.They just print the money and buy you out through their proxy shell companies.

“I believe that banking institutions are more dangerous to our liberties than standing armies. If the American people ever allow private banks to control the issue of their currency, first by inflation, then by deflation, the banks and corporations that will grow up around [the banks] will deprive the people of all property until their children wake-up homeless on the continent their fathers conquered. The issuing power should be taken from the banks and restored to the people, to whom it properly belongs.”Thomas Jefferson

Current US Inflation Rates: 2004-2014

http://www.usinflationcalculator.com/inflation/current-inflation-rates/

http://www.usinflationcalculator.com/inflation/current-inflation-rates/

The latest annual inflation rate for the United States is 1.1% through the 12 months ended February 2014, as published by the US government on March 18, 2014. The next inflation update is scheduled for release on April 15, 2014 at 8:30 a.m. ET. This upcoming data update will offer the inflation rate over the 12 months ended March 2014.

The chart, graph and table below displays annual US inflation rates from 2004-2014. Rates of inflation are calculated using the Current Consumer Price Index published monthly by the Bureau of Labor Statistics (BLS). For 2014, the most recent monthly data (12-month based) is used in the chart and graph.

Historical inflation rates are available from 1914-2014. If you would like to calculate rates between different dates, the US Inflation Calculator will do that quickly.

Inflation Rates Graph (2004-2014)

Annual Inflation Rates Chart (2004-2014)
http://www.usinflationcalculator.com/inflation/current-inflation-rates/

ChapulinColorado says

So long as interest rates don’t spike and Americans don’t flood the market with houses for sale, things will stay pretty stable.

Aaaah! Something I can hold my breath on....

Bubbabear says

ChapulinColorado says

So long as interest rates don’t spike and Americans don’t flood the market with houses for sale, things will stay pretty stable.

Aaaah! Something I can hold my breath on....

LOL... don't pass-out!