All of the residential real estate seems to indicate a recovery. While the entire sector has done well this year, there remain some stealthy issues that can that can drive the housing market right back to ground zero.
Existing inventory levels are not quite what they appear to be. There is no secret that there is a decline in inventory as well as an increase in the sales of homes. But where precisely are these sales and declines coming from? When the housing bubble burst, a huge back-log of foreclosed or bank-owned homes appeared. Over the past few years, banks have purposely taken measures not to flood the market with excess supply for many reasons: messing up their balance sheets, ongoing litigation with the government, and severely depressing prices. As of right now, the inventory levels have been “controlled.”
Of the 52 million homes that have a mortgage, over 10 million are currently underwater. There are currently 4 million homes that are delinquent (not paying their mortgage) and another 2 million that have entered the foreclosure process. These 6 million homes will be entering the third stage, bank owned, and hitting the market like a never ending tidal wave over the coming years.
Another factor to consider is that an unexpected take hike could swamp the residential housing sector. Not often related to the housing sector in the press are fiscal cliff ramifications. If Congress does not reach some sort of compromise, homeowners who are delinquent and perhaps even in foreclosure, will have to pay taxes on a short sale that banks have pursued since 2009 to avoid actually having to own these homes. The tax will be calculated on the difference between what the house is sold short for, and the value of the actual mortgage.
Finally, unemployment and income levels don’t really bode well. Individuals who become unemployed, remain unemployed, or are in fear of becoming unemployed, will not be buying a home soon. Currently, the unemployment rate remains much too high to sustain a meaningful housing recovery. There are currently over 22 million unemployed Americans.
Why these three? LEN, TOL, KBH
These stocks have seen tremendous gains in the past 18 months. These builders are among the largest, and the bigger they are, the harder they just might fall.
Written by Anthony Walters