Warning signs in the housing market

homebuilder stocks

 

The housing market has roared back to life in the past few years. Times are once again good for big homebuilders such as Lennar (LEN) and KB Home (KBH), which both reported solid earnings reports earlier this month.Other companies with strong ties to the housing market are doing extremely well too.

In case you forgot what happened to the housing market and economy shortly after that, the chart should serve as a painful reminder. Continue reading

America’s Alice-in-Wonderland Economy

Debt is good, dollar is gold, and stocks only go up—things are getting curiouser and curiouser.

The phrase “mad as a hatter” refers to the 19th-century use of mercuric-nitrate in the making of felt hats. Long-term exposure to mercury caused hatmakers to experience mood swings, tremors and emotional imbalances that made them appear mad.

We live in a world gone mad. Money printing—today’s mercury—has poisoned the whole financial system.

Trusted relationships have broken down. Fundamental truths appear suspect, and economic laws no longer seem to hold true. In America especially, it’s as if the whole economic system fell down a rabbit hole into a world where up is down, debt is good, and people exuberantly celebrate unbirthday parties every day of the year but one.

Continue reading

Canada’s Housing Bubble Is Stretched to the Limit

Since America’s housing bubble popped in 2007, Canada’s house prices have risen an astounding 22 percent. That has to be the definition of insanity—piling into the very investment that made your neighbor and most important economic partner virtually collapse.

But perhaps the biggest sign of a Canadian housing bubble is debt! Rising debt is the gas that fuels all bubbles. The average debt burden of Canadian families stands at a remarkable 153 percent of disposable income—and growing. It was only 150 percent three months ago. Canadians are now one of the most indebted people in the developed world, and just about as indebted as Americans before their bubble burst.

Based on this measure, the Economist figures the Canadian market is overvalued by over 70 percent. Even U.S. bubble epicenter Los Vegas has only seen house prices fall by 60 percent.

Last month, Merrill Lynch called Canada’s housing market overvalued, oversupplied and driven by speculation.

And in a report released last week, cibc argued that the people least likely to be able to afford new mortgages are the ones taking on new debt. One third of debtors hold about 75 percent of all personal debt. And who is this one third? According to cibc, it is boomers nearing retirement and those already burdened by high debt.

Canada’s bubble is getting close to bursting, and when it does, expect a massive economic implosion. Unemployment will soar, banks will fail or ask for bailouts, and the dollar will plunge in value. Millions of Canadians will be left paying a fixed mortgage on a rapidly depreciating asset that will destroy their financial lives.

Five years following the popping of America’s housing bubble, Canadians may be about to wish they had learned a lesson. Get your ear plugs ready.

Full article: Canada’s Housing Bubble Is Stretched to the Limit (The Trumpet)