Michael Lombardi writes: Will the gains that the U.S. housing market made in 2012 and 2013 continue into 2014? As you’ll read below, the biggest threat to the housing market is moving in the opposite direction—against housing.

Sure, the Case-Shiller S&P Home Price Index, which tracks prices in the U.S. housing market, shows an overall increase of 13.6% in home prices in the first 10 months of 2013 (see the chart below).

Chart courtesy of http://stockcharts.com/

But for growth in the housing market to continue, you need favorable market conditions for buyers. Unfortunately, the “favorable” conditions of 2011 through to 2013 are now becoming “unfavorable.”

Interest rates on mortgages are rising sharply. In November of 2013, the popular 30-year fixed mortgage rate tracked by Freddie Mac stood at 4.26%. In the same period a year ago, this rate was only 3.35%. (Source; Freddie Mac web site, last accessed January 3, 2013.) The interest rate on the standard 30-year fixed mortgage has gone up 27% in twelve months. And the higher mortgage rates go, the more the affordability for home buyers declines.

But rising interest rates are not the only factor weighing against the housing market in 2014.

Adjustable-rate mortgages (ARMs), which virtually disappeared after 2007, are making a big comeback.

According to DataQuick, in November of 2013, about 11% of all homes in Southern California were bought using ARMs. This has doubled in the area from the same period a year ago. (Source: Los Angeles Times, January 1, 2013.) ARMs have a fixed interest rate for a certain period of time, and then rates on the typical ARM adjust to market rates. What will happen to all those home buyers who purchased houses using ARMs over the past three years as interest rates increase? They will have added monthly costs—that’s what will happen.

Any softness for the U.S. housing market at this point will spell disaster for an already delicate U.S. economy. I’d be weary of the housing market recovery in 2014.

This article Trouble Ahead for Housing in 2014? was originally published at Profit Confidential

Michael Lombardi, MBA for Profit Confidential

http://www.profitconfidential.com

We publish Profit Confidential daily for our Lombardi Financial customers because we believe many of those reporting today’s financial news simply don’t know what they are telling you! Reporters are trained to tell you the news—not what it can mean for you! What you read in the popular news services, be it the daily newspapers, on the internet or TV, is the news from a “reporter’s opinion.” And there’s the big difference.

With Profit Confidential you are receiving the news with the opinions, commentaries and interpretations of seasoned financial analysts and economists. We analyze the actions of the stock market, precious metals, interest rates, real estate and other investments so we can tell you what we believe today’s financial news will mean for you tomorrow!

© 2013 Copyright Profit Confidential - All Rights Reserved

Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.

Only logged in users are allowed to post comments. Register/ Log in

The Market Oracle is a FREE Financial Markets Forecasting & Analysis web-site.
(c) 2005-2024 MarketOracle.co.uk (Market Oracle Ltd) - Market Oracle Ltd asserts copyright on all articles authored by our editorial team and all comments posted. Any and all information provided within the web-site, is for general information purposes only and Market Oracle Ltd do not warrant the accuracy, timeliness or suitability of any information provided on this site. nor is or shall be deemed to constitute, financial or any other advice or recommendation by us. and are also not meant to be investment advice or solicitation or recommendation to establish market positions. We do not give investment advice and our comments are an expression of opinion only and should not be construed in any manner whatsoever as recommendations to enter into a market position either stock, option, futures contract, bonds, commodity or any other financial instrument at any time. We recommend that independent professional advice is obtained before you make any investment or trading decisions. By using this site you agree to this sites Terms of Use. From time to time we promote or endorse certain products / services that we believe are worthy of your time and attention. In return for that endorsement and only in the cases where you purchase directly though us may we be compensated by the producers of those products.