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MarketWatch's Reeves: Weakening Housing Market a Threat to Investors

By    |   Monday, 07 April 2014 01:17 PM

The housing market looks set to take a hit and that slowdown could be bad for all investors, warns MarketWatch columnist Jeff Reeves.

A resurgent housing market is a main theme supporting the claims of an economic recovery. When housing weakens, negative sentiment is likely to spill over to other assets and weigh on consumer spending, writes Reeves.

By the spring and summer of 2015, Reeves says we can expect to see higher borrowing costs and weaker demand for residential real estate. 

In March, interest rates on a 30-year fixed mortgage averaged about 4.5 percent, the highest level since July 2011, according to data from Freddie Mac. Reeves says these higher rates create additional cost burdens that force some potential buyers into smaller homes and deter others altogether.

With one in six housing markets back to pre-recession levels, homeownership is beyond the reach of many price-sensitive homebuyers. And these downward pressures are occurring ahead of any rate hike from the Federal Reserve, which is expected within the next 12 to 18 months.

Optimists point to the rise in home prices as a positive signal. But Reeves encourages a more skeptical look at the numbers. He says data, such as declining housing starts, suggest recent price increases are driven more by tight supply than red-hot demand.

And he warns that supply dynamics could quickly change because many Americans who have been sitting in homes they don't want may flood the market aiming to cash in on the current price rebound.

The Sarasota Herald-Tribune also suggests a cooling off may be in store.

Pending sales are considered a reliable measuring stick for future purchases, says the paper.

Contracts for new homes fell in February for the eighth straight month. The National Association of Realtors' Pending Home Sales Index also fell to its lowest reading since October 2011, signaling weak sales in the months ahead, says the Herald-Tribune.

Experts attribute the weakness to higher mortgage rates, rising prices and a limited stock of homes.

The harsh winter also seems to have prevented homeowners in the Northeast from offloading their homes, which has implications for markets in Florida, says the Herald-Tribune.

Reeves suggests that expecting warmer weather to take the chill off the housing market is a risky bet.

It was already unrealistic to expect a repeat of 30 percent-plus gains seen in the S&P 500 last year, he said. And while he isn't forecasting a massive correction in equities, he warns, that if housing gets a sniffle, investors should expect other asset classes to come down with a cold.

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The housing market looks set to take a hit and that slowdown could be bad for all investors, warns MarketWatch columnist Jeff Reeves.
Monday, 07 April 2014 01:17 PM
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