Decoding Wall St.: The 10 Less Obvious Things About the Housing Market

A recent article in The Economist shed light on one important concept: the attractiveness of buying a home as opposed to renting. As people had no other choice but to abandon their homes as adjustable rate mortgage payments reset in 2007, 2008, and 2009 the overwhelming number of foreclosures on the market caused the value of pre-existing homes on the market for sale to lose value. In turn, and with the economy struggling, people had to rent. More people renting, fewer vacancies, and landlords took advantage by hiking monthly payments. Now, home values have come down so much, interest rates are so low, and people have increased confidence in the economy so it’s actually cheaper for them on a monthly basis to own a home than to rent. As our analysis demonstrates, builders are feeling confident they will sell houses in 2012 because the cost of renting doesn’t make a ton of sense at the moment.

While You Were Working

• The housing market has not contributed positively to U.S. economic growth since 2005. That is to say that fewer sales of homes and investments by homeowners have consistently declined.
• From 2005 to the present, construction industry employment has shrunk by a whopping 43%.
• On average, rents rose 2.4% in 2011 from 2010. Home values…fell 4% (great example of better affordability).
• $150 billion in home loans became “delinquent” in the last couple of months of 2011 (sound smart: “fourth quarter” or “4Q11”).

Decoding Wall St. Toolbox

• Government efforts to resuscitate housing: Two main ones to always remember include: (1) the Federal Reserve has kept interest rates abnormally low for over two years; and (2) the Congress has enacted programs to aid in reducing monthly mortgage payments.
• Housing overhang: When an economy has too many homes for sale and too little buyers. Sound like an economist by saying “supply exceeds demand.”
• Tight conditions: Demand for something exceeds supply.
• Growth below a “trend”: When an economic related number or the economy itself (as measured by Gross Domestic Product) is not growing as had in the past (sound smart: “historical trend”).
• Underwater: When a homeowner owns more on their home than it’s worth.
• High lending standards: Don’t have perfect credit? Well, then no loan for you from the bank.

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Based on the book co-authored by former CNBC anchor Nicole Lapin and Wall Street analyst Brian Sozzi, Decoding Wall St., the daily Decoding Wall St. newsletter is a lifeline to unlocking, and acting upon, an endless array of hidden financial and world news clues. On FaceBook and Twitter, Decoding Wall St. releases unique streaming content daily, as a compliment to the newsletter, to help get you through interviews right on down to after work cocktail parties.  For more information, including to join the movement, please visit www.decodingwallst.com.