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September 19, 2014

U.S. Housing Market: Decline or Crash in 2015?

By Michael Lombardi, MBA for Profit Confidential

As we progress to the end of 2014, my skepticism towards the U.S. housing market increases. In fact, the fate of home prices in 2015 is in question.

I don’t expect an outright collapse of the housing market like the one we saw in 2007, but I see the momentum in housing prices that began in 2012 and picked up in 2013 dissipating for several reasons.

First, according to Fannie Mae’s August 2014 National Housing Survey, the number of Americans thinking “it’s a good time to buy a house now” has hit an all-time low!

The chief economist at Fannie Mae, Doug Duncan, explained it best when he said, “The deterioration in consumer attitudes about the current home buying environment reflects a shift away from record home purchase affordability without enough momentum in consumer personal financial sentiment to compensate for it. This year’s labor market strength has not translated into sufficient income gains to inspire confidence among consumers to purchase a home, even in the current favorable interest rate environment.” (Source: “Consumer Housing Sentiment Loses Momentum as Income Growth Remains Stagnant,” Fannie Mae, September 8, 2014.)

Secondly, while in 2012 and 2013 we saw a massive influx of financial investors enter the housing market—they bought entire city blocks and bid home prices higher—these investors are no longer as active in the housing market simply because all the “good deals” are gone.

Look at the red arrow I have drawn in the below chart of the S&P Case-Shiller Home Price Index.

S&P Case-Shiller Home Price Index Chart

In the chart, you see that since April (where the arrow appears), home prices in the U.S. housing market have actually declined. (As far as we know, Profit Confidential is the only place that has been predicting lower housing prices.)
While the mainstream media was adamant that the housing market was improving, the opposite has happened. New homebuyers are missing from the action and house prices are now in decline again.

If the housing market continues its downward trajectory, it will result in even less employment in the construction sector, thus impacting economic growth. The price chart of the Dow Jones U.S. Home Construction Index, which has been falling since May of 2013, is a leading indicator that has been predicting the softness in the housing market. For 2015, I will be surprised if the average selling price of a home in the U.S. rises. Buyer beware! 

About the Author - Michael Lombardi, MBA at Profit Confidential, a daily publication for Lombardi Financial customers.  (EconMatters author archive Here

The views and opinions expressed herein are the author's own, and do not necessarily reflect those of EconMatters.

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