This Day On The Street
Continue to site
ADVERTISEMENT
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here

Inspecting Housing's Foundation for Flaws

Reports of the real estate bubble's demise have persistently proven to be premature. Some folks, notably Federal Reserve Chairman Alan Greenspan, even dispute the notion a real estate bubble exists.

But recent weakness in housing stats suggests the winning combination of cheap borrowing and rapid price increases finally may be coming to an end. Such a change in sentiment, should it persist, has widespread implications for the economy and some of the market's best-performing sectors, including the still-hot homebuilders.

"Regrettably, we are witnessing a replay of the late-1990s telecommunications and technology boom-and-bust experience, where a surfeit of speculative finance fosters destabilizing overspending in the 'hot' sectors," writes Doug Noland, market strategist at David Tice & Associates, managers of the (BEARX) fund.

Admittedly, Noland is among those skeptics who've been fruitlessly searching for the end of the housing boom for some time. But early warning signs may be emerging: While the S&P 500 gained 0.6% in the week prior to Wednesday's setback, real estate companies such as WCI Communities (WCI) and St. Joe (JOE - Get Report) lost over 4% each, and the industry group fell about 1%, according to Morningstar. Meanwhile, real estate investment trusts (REITs) lost 3.5%.

The recent weakness could be a harbinger for the housing sector, but still left real estate up 16% year to date and REITs up by 12.1%; enviable gains compared with the S&P's less-than 1% advance.

Huffing and Puffing

The entire residential real estate sector has been fueled for the past few years by rising prices and falling interest rates. High home prices have encouraged quick sales and prompted lenders to open the spigots. Lower interest rates increase demand by making homes more affordable, attracting first-time buyers and converting renters to owners. Mortgage debt stands at a record $6.8 trillion.

Celia Chen, director of housing economics at Economy.com, says housing sales may remain strong for another month or two, but should slow substantially by year-end as mortgage rates tick up and the furious pace of the past few years leaves fewer and fewer buyers. Indeed, evidence is starting to emerge that robust trends in housing are starting to falter.
1 of 4

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Only $9.95
14-Days Free
Dividend Stock Advisor

David Peltier identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Options Profits

Our options trading pros provide over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • Actionable options commentary and news
  • Real-time trading community
SYM TRADE IT LAST %CHG
LEN $50.43 0.00%
JOE $17.42 0.00%
PHM $20.44 0.00%
TOL $36.64 0.00%
AAPL $113.29 0.00%

Markets

Chart of I:DJI
DOW 16,643.01 -11.76 -0.07%
S&P 500 1,988.87 +1.21 0.06%
NASDAQ 4,828.3250 +15.6170 0.32%

Free Reports

Top Rated Stocks Top Rated Funds Top Rated ETFs