By Profit Confidential<\/p>\n
I completely disagree with the notion that the housing market<\/a> in the U.S. economy is improving.<\/p>\n No doubt, we have seen home prices increase, but the price increases have been minor and restricted to certain geographical areas\u2014but by no means do the price increases suggest there are actual improvements in the real estate market. In fact, the housing market<\/a> may face even more trouble ahead.<\/p>\n For the housing market to see real recovery, we need to witness increased participation from home buyers. While an increase in home prices may suggest to some that there are actual home buyers coming into the market and pushing prices higher, the truth is the opposite.<\/p>\n When I say \u201chome buyers,\u201d I don\u2019t mean institutional investors who have been buying homes in the U.S. housing market to rent. I mean those individuals who actually buy a house to live in it\u2014they are not there to speculate.<\/p>\n In June, first-time home buyers accounted for 29% of all the existing-home sales in the U.S. housing market\u2014down more than nine percent from the same period a year ago. According to the National Association of Realtors, in a healthy housing market, first-time home buyers should account for 40% of all existing-home sales. (Source: National Association of Realtors, July 22, 2013.)<\/p>\n I can see the number of real home buyers decline even further.<\/p>\n The national average commitment rate for 30-year mortgages, reported by Freddie Mac, was 4.07% in June. In the same period last year, it was 3.68%. As mortgage rates continue to rise\u2014and they will as the Federal Reserve<\/a> prepares to \u201ctaper\u201d quantitative easing\u2014it will become more difficult for home buyers to afford a home.<\/p>\n Consider this: the Housing Affordability Index, from January to May of 2013, has fallen 18%. It stood at 172.7 in May and was 210.7 in January. (Source: Federal Reserve Bank of St. Louis web site, last accessed July 23, 2013.)<\/p>\n I wish I could say the U.S. housing market is witnessing a recovery, but the statistics suggest otherwise. I will consider the housing market to be improving when I see real home buyers returning to the market and buying homes. As it stands, with interest rates<\/a> on the rise, I can\u2019t see them returning for years.<\/p>\n The yield on the U.S. 10-year Treasury stands at 2.55% this morning\u2014116 basis points higher than one year ago. As rates continue to rise, the dynamics for institutional investors change. At one point, they will become sellers of homes, not buyers. And this will put more pressure on the housing market.<\/p>\n