Cart (0)
business newsThe Housing Market Remains in the Dumps
By
Richard Suttmeier
Apr 16, 2010 9:00 am
Builder confidence remains low, defaults are increasing in the loan modification programs, and foreclosures surge.
PRINT
Editor's Note: This article was written by Richard Suttmeier, chief market strategist at ValuEngine.com, which is a fundamentally-based quant research firm in Princeton, New Jersey, that covers more than 5,000 stocks every day.
The National Association of Home Builder Housing Market Index (HMI) may have improved to 19 from 15 in April, but considering that 50 is a “neutral” reading, the overall builder confidence remains in the dumps. There may have been some last-minute orders for new homes, but the tax credits expire for contracts at the end of April. The NAHB described the four-point gain as a surge, but I view that comment as pure cheerleading.
Click to enlarge
Homebuilders remain in a bind from tighter lending standards as C&D loans are next to impossible to get, and as lower home appraisals from foreclosures and short sales cut into the demand for new homes.
With initial jobless claims up the past two weeks to 484,000, the labor market remains a concern for the housing sector. Continuing claims are rising again as is the four-week moving average.
The Housing Sector Index (HGX) reached a new 52-week high with weekly MOJO in overbought reading. In my judgment, HGX is anticipating that the HMI should be above 80. My weekly pivot for HGX is $115.99 with monthly resistance at $122.16.
Source: Thomson / Reuters
Defaults are rising in the Loan Modification Program -- Not helping the housing market or the banking system is the fact that defaults on modified mortgages doubled in March to 2,879 from 1,499 in February.
There are about 7 million homeowners behind on their mortgage payments. The modification programs were intended to help 4 million stay in their home, but the results have been dismal. Only 227,922 permanent modifications have occurred, and in my opinion re-defaults will occur.
According to the latest Mortgage Metrics Report complied by the Office of Thrift Supervision and the comptroller of the currency, 60% of mortgage modifications negotiated by homeowners with their servicing bank entered default a year later.
In addition, many homeowners are saddled with HOA fees, home equity loans, and credit card debt, which must be covered by generally lower incomes.
Foreclosures surged in the first quarter as banks increase OREO -- Home foreclosures spiked 16% in the first quarter, the largest jump in five years. In my discussions on foreclosures I've been worried about the growth of OREO, Other Real Estate Owned, which will deteriorate further when the FDIC Quarterly Banking Profile for the first quarter is released in the later half of May. RealtyTrac reported that the number of homes taken over by banks spiked 35% in the first quarter. This could result in more than a million bank repossessions in 2010. This is indeed the first real sign that banks are catching up with failed mortgage mitigations, and as I have been saying there remains a glut of depressed properties.
By the numbers: 367,000 foreclosures in March is up 19% sequentially and 7.6% year over year. The first quarter OREO was a record 258,000.
ValuEngine Valuations -- Justify shifting to 75% cash once again
MOJO may be strong, but only 39% of all stocks are undervalued with 61% overvalued. Only 18.8% of stocks are undervalued by 20% or more and 31% of stocks are overvalued by 20% or more. All 11 sectors are overvalued by 3.2% (Health Care) to 20.5% (Consumer Durables). Sector P/E ratios range from 16.6 times (Public Utilities) to 29 times (Technology)! There are only 20 stocks that are at least 10% undervalued and projected to gain 10% over the next 12 months that trade above $10 per share, and none are “brand” names. This is a historic time to raise cash to 75%.
At 1225 to 1232 it's time to short the S&P 500 -- The weekly chart is overbought with the 200-week simple moving average at 1225 and the 61.8% retracement level at 61.8%. This retracement is back to the high of October 2007. It was Fibonacci Retracement levels that helped me time the low of 666 back on March 5, 2009.
Source: Thomson / Reuters
The National Association of Home Builder Housing Market Index (HMI) may have improved to 19 from 15 in April, but considering that 50 is a “neutral” reading, the overall builder confidence remains in the dumps. There may have been some last-minute orders for new homes, but the tax credits expire for contracts at the end of April. The NAHB described the four-point gain as a surge, but I view that comment as pure cheerleading.
Click to enlarge
Homebuilders remain in a bind from tighter lending standards as C&D loans are next to impossible to get, and as lower home appraisals from foreclosures and short sales cut into the demand for new homes.
With initial jobless claims up the past two weeks to 484,000, the labor market remains a concern for the housing sector. Continuing claims are rising again as is the four-week moving average.
The Housing Sector Index (HGX) reached a new 52-week high with weekly MOJO in overbought reading. In my judgment, HGX is anticipating that the HMI should be above 80. My weekly pivot for HGX is $115.99 with monthly resistance at $122.16.
Source: Thomson / Reuters
Defaults are rising in the Loan Modification Program -- Not helping the housing market or the banking system is the fact that defaults on modified mortgages doubled in March to 2,879 from 1,499 in February.
There are about 7 million homeowners behind on their mortgage payments. The modification programs were intended to help 4 million stay in their home, but the results have been dismal. Only 227,922 permanent modifications have occurred, and in my opinion re-defaults will occur.
According to the latest Mortgage Metrics Report complied by the Office of Thrift Supervision and the comptroller of the currency, 60% of mortgage modifications negotiated by homeowners with their servicing bank entered default a year later.
In addition, many homeowners are saddled with HOA fees, home equity loans, and credit card debt, which must be covered by generally lower incomes.
Foreclosures surged in the first quarter as banks increase OREO -- Home foreclosures spiked 16% in the first quarter, the largest jump in five years. In my discussions on foreclosures I've been worried about the growth of OREO, Other Real Estate Owned, which will deteriorate further when the FDIC Quarterly Banking Profile for the first quarter is released in the later half of May. RealtyTrac reported that the number of homes taken over by banks spiked 35% in the first quarter. This could result in more than a million bank repossessions in 2010. This is indeed the first real sign that banks are catching up with failed mortgage mitigations, and as I have been saying there remains a glut of depressed properties.
By the numbers: 367,000 foreclosures in March is up 19% sequentially and 7.6% year over year. The first quarter OREO was a record 258,000.
ValuEngine Valuations -- Justify shifting to 75% cash once again
MOJO may be strong, but only 39% of all stocks are undervalued with 61% overvalued. Only 18.8% of stocks are undervalued by 20% or more and 31% of stocks are overvalued by 20% or more. All 11 sectors are overvalued by 3.2% (Health Care) to 20.5% (Consumer Durables). Sector P/E ratios range from 16.6 times (Public Utilities) to 29 times (Technology)! There are only 20 stocks that are at least 10% undervalued and projected to gain 10% over the next 12 months that trade above $10 per share, and none are “brand” names. This is a historic time to raise cash to 75%.
At 1225 to 1232 it's time to short the S&P 500 -- The weekly chart is overbought with the 200-week simple moving average at 1225 and the 61.8% retracement level at 61.8%. This retracement is back to the high of October 2007. It was Fibonacci Retracement levels that helped me time the low of 666 back on March 5, 2009.
Source: Thomson / Reuters
No positions in stocks mentioned.
The information on this website solely reflects the analysis of or opinion about the performance of securities and financial markets by the writers whose articles appear on the site. The views expressed by the writers are not necessarily the views of Minyanville Media, Inc. or members of its management. Nothing contained on the website is intended to constitute a recommendation or advice addressed to an individual investor or category of investors to purchase, sell or hold any security, or to take any action with respect to the prospective movement of the securities markets or to solicit the purchase or sale of any security. Any investment decisions must be made by the reader either individually or in consultation with his or her investment professional. Minyanville writers and staff may trade or hold positions in securities that are discussed in articles appearing on the website. Writers of articles are required to disclose whether they have a position in any stock or fund discussed in an article, but are not permitted to disclose the size or direction of the position. Nothing on this website is intended to solicit business of any kind for a writer's business or fund. Minyanville management and staff as well as contributing writers will not respond to emails or other communications requesting investment advice.
Copyright 2011 Minyanville Media, Inc. All Rights Reserved.
Copyright 2011 Minyanville Media, Inc. All Rights Reserved.
