Financial Crisis of the U.S. Housing Market
The housing market is seeing a slow rise in the home prices with the supply of houses slowly dwindling in the U.S. economy. The main reason is that institutions as well as individual investors are in a haste to buy residential properties.
But the most notable aspect of this ‘so-called recovery’ is the absence of the first-time homebuyers. They are the most important participants that contribute to the economy condition of the nation’s housing sector. They are the ones that will boost the actual growth in this market. They are the ones that add to the consumer spending in the U.S. economy.
Consider the month of December in 2012, wherein out of the total existing home sales in the U.S. housing market, there were only 30% first - time homebuyers. Further this number has remained the same since the month of November and has declined by more than 3% with respect to what it was in December 2011.
(Source: National Association of Realtors web site, last accessed January 22, 2013).
As per the Association of Home Appliances Manufacturers (AHAM), after the purported rebound in the housing market, the delivery of appliances to stores and warehouses in fact dropped to 60.7 million units in the year 2012, in contrast to the year 2011, when they were 60.8 million units. (Source: Wall Street Journal, January 15, 2013). Also, in 2012, the shipments of the washers, dishwashers, dryers, freezers, refrigerators and ovens, all the main appliances dropped by 2.3%, while the month of December 2012 alone saw the number of shipments drop 4.1% as compared to the same month in the previous year. This is certainly an eye-opener to the reality that essentially, the housing market has not recuperated; whatever the U.S. economy gurus may be saying! Otherwise, there would not have been a waning of appliance sales.
When investors buy single family homes, they can hope to not only reap better returns on their investments, but can also expand and vary their investment portfolios without opting for purchasing of bonds or stocks.
On the other hand, institutional investors spend colossal amounts to buy residential properties. They fix them up and rent them out with the hope that they will yield them solid returns. The number of such investors is on the rising trend. This is indeed a deep financial crunch in the U.S. economy that the housing market has landed into.
According to Michael Lombardi, MBA of Profit Confidential - The U.S. housing market is becoming a main topic again in the mainstream media these days. I keep reading about how rising home prices will now get the U.S. economy going again.
The National Association of Realtors (NAR) expects average existing home prices in 2013 to be around $185,800, with an increase to $193,600 by the end of 2014. (Source: National Association of Realtors, January 2013.)
But what’s fuelling the soft rebound in the U.S. housing market and home prices is something that’s never happened in our history. It’s not individuals buying houses who are moving prices and demand higher; it’s institutions. Yes, big institutional investors are buying houses—and in a big way!
written by Nicholas Wind, February 13, 2013