Why the Future Looks Uncertain

We are hearing a lot of proclamations of a revival in the housing market. The media and Washington seem fixated on trying to hypnotize us that a magical recovery is taking place.

I won’t argue against that, I like you, welcome the increase in sales and work. However, it is too little, too late.

In 2006, I told many that they needed to be careful because the market didn’t make sense. I advised them to keep a toe in it, but to be cautious not to submerge themselves fully in it. Some listened and some didn’t.

I believe we are possibly looking at the same scenario right now, but at a much smaller scale. Right now, investors and the big home builders are fueling the market. Investors alone are pushing pricing by over-paying as much as 30% Rental properties are showing strong positive cash flows. However, other factors need to be considered for the overall, long-term BIG picture.

A slowdown in demand for aluminum is viewed as a precursor for slowing economic activity, much like copper and lumber, and so weakness here confirms other indications of a slowing global economy.

For the week, economic news was mixed as the Case/Shiller Home Price Index showed a strong updraft in housing prices with a gain of 10.9 percent year-over-year. Three other closely watched economic reports also posted positive numbers with consumer confidence and sentiment rising in May and the Chicago PMI registering 58.7. Bad news came from pending home sales, which missed expectations, and consumer spending and income, which were both weak and below expectations and reflected a consumer pulling back on spending while incomes remain flat.

The unchanging numbers of unemployed Americans coupled with a downgrade in consumer headwinds will add significantly to the U.S. economy. Initial jobless claims spiked higher on Thursday to 354,000 on expectations of 341,000 and the revised GDP report showed the U.S. economy limping along at 2.4 percent, well below normal recoveries and below expectations for Q1.

One last Coup de Gras and the biggest news is the sharp rise in interest rates. A 30 year fix is posting at 4.10% as of Monday morning. So the temptation for higher interest rates is showing its hand. This will be the significant game changer for our economy. I believe the Feds printing of easy money which has already created previous bubbles or contributed to them, could easily deflate any resurgence in the real estate market. So we have a wait and see situation.

Here is the outlook I see. The economy is your marketplace. Go for sales that are going to make you money. Use that money to pay off debt and build cash reserves. Since normalcy is not the norm, any other thought would be the equivalent of committing Hari Kari.