The State of US Housing and the Impact of QE

US Housing has been one of the star performers in an otherwise mediocre national economy, but is it really all that its said to be? Possible warning signs are numbers concerning foreclosures, as across 33 states foreclosure rates increased and completed foreclosures jumped 11% in May, up from the previous month. Overall, prices are much higher than this time last year and foreclosure starts are way down, but nearly 20% of US homes with mortgages still owe more than the value of the home.

As one of the strongest areas of the American economy, it is important to look into the parts of the housing market that define it. The housing market has shown strength, but why? One of the main reasons behind the stellar performance of the housing market is not due to the purchases being made by average Americans, but rather institutional buyers looking to rent out homes as a source of income. This creates a false image of growth, growth that is not truly representative of the state of the US economy. According to the Campbell/Inside Mortgage Finance HousingPulse Tracking Survey, investors purchased 69% of “damaged” properties in April 2013, while first-time home buyers accounted for only 16% of “damaged” purchases.
This disparity makes it even more difficult for the average American to own a house as the prices are driven up artificially by institutional buyers.

 A likely culprit for the increase in institutional buyers are the extremely low rates at which they can borrow money from the US government. A possible increase in rates is something that worries analysts about the US housing market, but as long as the Fed manages to calm down investors and reiterate their intentions of not ending QE soon, the rates could fall to a point that would make the purchase of a house more friendly to average Americans.

On Monday, the US NAHB Housing Market Index will be released which will offer a preemptive look into the condition of the US housing market and overall sense of direction.Growth in this index will likely spur spending, generating demand for goods and services.

On Tuesday, the Month over Month and Year over Year Consumer Price Indices will be released, with an expected 0.2% and 1.4% gain respectively. The Month over Month expectations are higher than the previous -0.4% and the Year over Year expectations are higher than the previous at 1.1%.