Homebuilder Industry Analysis…

As an aside, I’ve seen very much the same thing as in Seattle in Montclair, NJ. I’m seeing more For Sale signs staying up for longer periods of time.

I would say it gets tougher but not *much* tougher. On a 30 year mortgage, one hike is a small amount of money per month. It is the cumulation that hurts.

By the way, great article Peter. I like the fact that you are telling us some of the trends that are happening in Main Street.

At the same time, I’ve noticed many people going to the other extreme of panic - suggesting we are experiencing a housing bubble. Quantitative analysis can help put things in perspective here - not analysis of stocks, but rather of housing cycles. I’ve posted an article on this called Housing Cycles, This Time With Pictures” that suggest that at least nationally, we’re at the peak of a cycle, but not a bubble (though local bubbles undoubtedly exist).

While this only speaks to the national scene (and of course all real estate is local), it does corroborate what you say. Those who have purchased or refinanced with ARMs, particularly those on a Treasury index, are in for a shock - most of them will already adjust to higher than today’s fixed rates. But those who took advantage of historic low fixed rates will be just fine. Those whose ARMs are indexed to the 11th district cost of funds won’t be hurt as badly either (depending on how stretched they were and where rates go moving forward).

The other people who will be hurt are speculators - those who purchased in order to flip homes - they are the ones who will sell as their equity starts dropping. But I wouldn’t expect most homeowners to sell as the market drops. Unlike stocks, people want to live somewhere, and unless someone needs to move they are more likely to ride out the cycle. The result is a lower level of real estate sales (bad news for realtors, but not necessarily for homeowners). Those who purchased before 2003 will still be ahead, and even those who bought later have no real incentive to sell - their loan may be underwater, but as long as they can carry the payments, there’s no benefit to selling (the equity lost at sale might make purchasing another house tough) - they’re more likely to ride out the cycle.

In terms of my area (Silicon Valley), it seems to have realtors puzzled. A recent report showed lower sales volume and houses on the market longer, but prices still rising. Seems like sellers who don’t need to sell, aren’t - at least not yet. And in my neighborhood there aren’t many for sale signs this season, but those that show up are selling quickly.

I haven’t benefited from the property bubble, I don’t feel ‘very rich’ and are currently left with no choice except to rent.

We need further monetary policy tightening.

On behalf of the InvestorGeeks founders, I want to publicly state that we are very pleased to have Peter on board. His market analysis shows a deep understanding of how both wall street and “main street” work.

You can find more of Peter’s great writing at http://www.righttimeinvesting.org/.