False Alarm in Mortgage Data

The latest Weekly Mortgage Applications data produced by the Mortgage Bankers Association (MBA) offered a concerning data point Wednesday. Purchase applications, or those mortgage applications tied to the purchase of homes, dropped a dramatic 9%. But, never fear dear readers, as the reason for the decline proved irrelevant.

Our founder earned clients a 23% average annual return over five years as a stock analyst on Wall Street. "The Greek" has written for institutional newsletters, Businessweek, Real Money, Seeking Alpha and others, while also appearing across TV and radio. While writing for Wall Street Greek, Mr. Kaminis presciently warned of the financial crisis.

Mortgage Applications

For the week ending June 15, 2012, the MBA’s Market Composite Index of overall application activity decreased 0.8% on a seasonally adjusted basis. The Purchase Index, though, dropped 9% through the same period, raising an eyebrow at minimum, or for a Greek like me, maximum. As it turns out, the scary decline was “likely” due to a recalibration following the Memorial Day holiday. “Likely” is the MBA’s descriptive term, and is troublesome in its uncertainty, because if they don’t know then who can? I’ve followed this report regularly over the last several years, though, and have noted significant skew around three-day holidays. I’ve theorized that while the data is adjusted for the holiday, perhaps the fall-off in activity on the Friday before and the Tuesday following the long weekend is not accounted for. In any event, it’s very likely you need not worry about the latest drop.

That said, I’ve recently reported that I still see homebuilders’ shares as a risky option as far as equities go. For traders, though, I think the securities should offer a useful tool. That’s because I expect the high-beta cyclical stocks will be at the whim of macroeconomic scares while also putting up decent EPS results as they gain market share from smaller crisis-hobbled competitors. Thus, there should be plenty of long and short opportunities for day traders of the group. See more about this topic via my article entitled Buy Homebuilders? No! Nein! Oxi!, which is focused on their longer term hinge to a deteriorating global economy.

The MBA’s latest report also noted a 1% increase in the Refinance Index, as mortgage rates remained near historical record lows. In fact, conforming and jumbo loan rates for 30-year fixed rate mortgages did mark new lows on average, at 3.87% and 4.06%, respectively. FHA-backed 30-year rates inched up to 3.72%, while 15-year fixed rate mortgage rates rose slightly to 3.25%.

The MBA also noted that FHA refinance volume “exploded to an all-time high, more than doubling over the week.” It was because new, lower FHA premiums on streamlined refinance loans came into full effect. The opportunity was not missed by those in need of reducing their financing costs, and that’s a good thing for the economy and those struggling to make mortgage payments.

The nation's most important mortgage originators should factor mortgage activity into their valuation in some degree or another, though the shares are moving today on the much more important Fed catalyst. Still, in 2011 the largest originators were Wells Fargo (WFC), down 0.6% today, Bank of America (NYSE: BAC) +0.4%, J.P. Morgan Chase (NYSE: JPM) +3.8%, Citigroup (NYSE: C) +2.1%, Ally, PHH Corp. (NYSE: PHH) -0.7%, U.S. Bancorp (NYSE: USB) -0.1%, Quicken, Flagstar Bancorp (NYSE: FBC) +2.9%, and BB&T (NYSE: BBT) unchanged.

Please see our disclosures at the Wall Street Greek website and author bio pages found there. This article and website in no way offers or represents financial or investment advice. Information is provided for entertainment purposes only.

Homebuilder Shares in My Dog House

The title here highlights the truth, which is that the housing market remains pitiful. The National Association of Home Builders (NAHB) reported its Housing Market Index (HMI) Monday. The inherently biased industry trade group promoted the news of its one point gain for the month of June, over a revised lower prior month result. On that news, the SPDR S&P Homebuilders (NYSE: XHB) gained 2% Monday, with the shares of major builders Toll Brothers (NYSE: TOL), PulteGroup (NYSE: PHM), Lennar (NYSE: LEN), K.B. Home (NYSE: KBH), D.R. Horton (NYSE: DHI) and Beazer Homes (NYSE: BZH) up between 1.9% and 4.1% on the day. However, the absolute value of the index continues to reflect a dire situation for most home builders and remains hard for me to celebrate.

Our founder earned clients a 23% average annual return over five years as a stock analyst on Wall Street. "The Greek" has written for institutional newsletters, Businessweek, Real Money, Seeking Alpha and others, while also appearing across TV and radio. While writing for Wall Street Greek, Mr. Kaminis presciently warned of the financial crisis.

Homebuilder Sentiment

The HMI improved to a mark of 29, up from 28 for May, revised from 29 at its initial reporting. The NAHB’s chairman said the gain was “reflective of the continued, gradual improvement we are seeing in many individual housing markets as more buyers decide to take advantage of today’s low prices and interest rates.” The economy is stagnating, though, with unemployment holding high and new labor data reflecting a stalling. Consumer confidence has hinged on fear around the European situation and stock market volatility. Economic activity has been tangibly impacted by lighter European buying and its impact to the global economy. Housing’s spring selling season has fallen short of hopes, based on the housing data flow to date.

The HMI report showed current sales conditions improved, with a relative component measure rising two points to 32. That’s the highest it’s been since April 2007, but it’s still poor. Builders’ views for the next six months were unchanged in June, with the component index measuring it remaining at a mark of 34. The most telling statistic is the measure of prospective buyer traffic, because it’s not based on hope or a subjective opinion, at least not as much as the other data points. Prospective buyer traffic was unchanged, and the index measuring it was stuck at a morbid mark of 23.

Regional results were mixed with the Midwest measure up five points to 31 and the West up four points to 33. The Northeast measure fell two points to 29 and the South dropped two points to 26. Please take careful not of this next point. Each of these numerical measures is deeply short of the breakpoint mark of 50, where delineation occurs between builders’ opinions of good and poor conditions. So, I ask you, how poor must housing market conditions be if the index measuring it is 20 points short of breakeven? I think I've made my point...

This article should also interest investors in home builders NVR Inc. (NYSE: NVR), Gafisa SA (NYSE: GFA), MDC Holdings (NYSE: MDC), Ryland Group (NYSE: RYL), Meritage Homes (NYSE: MTH), Brookfield Homes (NYSE: BHS), Standard Pacific (NYSE: SPF), M/I Homes (NYSE: MHO) and Orleans Homebuilders (AMEX: OHB).

Please see our disclosures at the Wall Street Greek website and author bio pages found there. This article and website in no way offers or represents financial or investment advice. Information is provided for entertainment purposes only.

Get Out of Bonds!

Shakespeare wrote in Hamlet, “Neither a borrower nor a lender be.” With long-term rates repressed artificially by the Federal Reserve to historically low levels, I want to modify this phrase to “Neither a lender but a borrower be.” Clearly a bubble has formed as conservative and risk adverse capital has fled to the “safety” of US Treasury Bonds. The decision for bonds is not whether to exit the market, but when.

Relative tickers include Federated Investors (NYSE: FII), Barclay's (NYSE: BCS), T. Rowe Price (Nasdaq: TROW), State Street (NYSE: STT), BlackRock (NYSE: BLK) and J.P. Morgan Chase (NYSE: JPM).

Sell Bonds

I have had the privilege of interviewing Charles Nenner when in mid- 2011 he forecast the bottoming of the CPI in April 2012 and the bottoming of the PPI in October 2012, heralding the end of the deflationary cycle of 30 years which began in the Volcker years of 1981-1982. The 1975-1979 timeframe exhibited the final stages of inflation with a “blow-off” era of double-digit inflation. Perhaps 2012 will exhibit the final deflationary dip this summer. According to Charles Nenner, in late 2012 the inflationary cycle starts again, and will be active for the next 30 years, when bond rates are so low there is very little room left to drop lower; the path of least resistance is up. Charles Nenner, in recent interviews, has again reiterated his call that long-term bonds will bottom this summer. This does not bode well for the stock and bond market. Furthermore, Lakshman Achuthan of The Economic Cycle Research Institute has again re-affirmed ECRI's call for an imminent recession, coinciding with the regularly published concerns of our Editor-in-Chief, Markos Kaminis; this also does not bode well for stocks. Typically, a recession kills inflation, which by combining both forecasts would indicate more immediate deflation and a slow building into an extended inflationary period. Interestingly, the array of ECRI indicators shows an uptick in the Housing Index.

If bond rates are bottoming and inflation is beginning, asset allocation will become paramount to protecting and growing wealth. The onset of a recession should drive rates down; an attempt by the Federal Reserve to stimulate the economy once again with QE3 may drive rates lower yet, for a very short-term. This window presents an enormous opportunity, perhaps a generational buying opportunity to purchase Real Estate at still discounted pricing to capture historically repressed and artificially low long-term rates; it’s an irresistible package. Mortgages in the US are typically obtained with an interest rate fixed for the entire length of the loan and amortized fully over a 15 or 30 year term. This will be an enormous advantage to a family or an investor in the coming years should rates return to 5% to 7% or higher.

Initially, should the US enter a recession, the cash flow generated by the rental income would mitigate reduced earnings from stock dividends and any bonds still held. A recession would reduce new construction and further exacerbate a tightening housing market, balancing the rental market between declining personal income from a weakening job market and the need for basic shelter. The income stream generated by rental property should remain viable, with possibly a little downward pressure; more so if the economic downturn turns vicious, but still producing a dependable monthly revenue source several basis points above US Treasury Rates.

There is a strong possibility we could endure a very vicious economic slowdown. As our chief here at Wall Street Greek has warned regularly will happen, and as Lakshman Achuthan has indicated in several of his interviews, an “event or black swan” can turn a mild recession into something worse. In order to protect one's wealth and future, personal debt costs need to be reduced, reserves need to be expanded to withstand a two-year slowdown, and any underwater or non-cash flowing properties need to be reviewed for liquidation via the short sale process to reduce the income and fiscal drag from these negative properties.

Qualified investors should start to position for the recovery that will certainly follow the slowdown, and accumulate quality properties that have the potential to grow in both value and increase revenue. A slowdown will bring properties held by weaker investors to the market, perhaps at very attractive pricing. Going forward, pricing may soften as higher mortgage rates depress affordability and dampen demand. The offset will be rising rents, as supply is further curtailed spiraling into shortages; higher rates brings higher mortgage and housing payments which evolves into higher rent. Currently, a package of both discounted pricing and historically low and repressed fixed mortgage rates present an appealing mixture. Further, the US Leading Home Index of ECRI has been trending positively against a back drop of declining indicators, forecasting a possible bottom in the devastated U.S. housing market. ECRI has a stellar record of forecasting inflection points and trends. As devastated as housing has been, it may be the safer asset to protect and grow wealth in the coming years.

With Treasury Bonds in a possible bubble, a prudent investor should consider capturing gains on a large portion of his fixed income portfolio. Furthermore, he should move capital into rental properties capable of maintaining current income and growing forward earnings, which is extremely important in a deflationary environment, but also important for hedging in an inflationary environment. Accumulating investment properties with dependable monthly income as well as offering potential for asset growth should be considered and reviewed with your adviser. The risk to a bond portfolio may soon be much, much, greater than ever anticipated. Thus, it’s time to get out of bonds.

Article should interest investors in SPDR Dow Jones Industrial Average (NYSE: DIA), SPDR S&P 500 (NYSE: SPY), PowerShares QQQ Trust (Nasdaq: QQQ), ProShares Short Dow 30 (NYSE: DOG), ProShares Ultra Short S&P 500 (NYSE: SDS), ProShares Ultra QQQ (NYSE: QLD), NYSE Euronext (NYSE: NYX), The NASDAQ OMX Group (Nasdaq: NDAQ), Intercontinental Exchange (NYSE: ICE), E*Trade Financial (Nasdaq: ETFC), Charles Schwab (Nasdaq: SCHW), Asset Acceptance Capital (Nasdaq: AACC), Affiliated Managers (NYSE: AMG), Ameriprise Financial (NYSE: AMP), TD Ameritrade (Nasdaq: AMTD), BGC Partners (Nasdaq: BGCP), Bank of New York Mellon (NYSE: BK), BlackRock (NYSE: BLK), CIT Group (NYSE: CIT), Calamos Asset Management (Nasdaq: CLMS), CME Group (NYSE: CME), Cohn & Steers (NYSE: CNS), Cowen Group (Nasdaq: COWN), Diamond Hill Investment (Nasdaq: DHIL), Dollar Financial (Nasdaq: DLLR), Duff & Phelps (Nasdaq: DUF), Encore Capital (Nasdaq: ECPG), Edelman Financial (Nasdaq: EF), Equifax (NYSE: EFX), Epoch (Nasdaq: EPHC), Evercore Partners (NYSE: EVR), EXCorp. (Nasdaq: EZPW), FBR Capital Markets (Nasdaq: FBCM), First Cash Financial (Nasdaq: FCFS), Federated Investors (NYSE: FII), First Marblehead (NYSE: FMD), Fidelity National Financial (NYSE: FNF), Financial Engines (Nasdaq: FNGN), FXCM (Nasdaq: FXCM), Gamco Investors (NYSE: GBL), GAIN Capital (Nasdaq: GCAP), Green Dot (Nasdaq: GDOT), GFI Group (Nasdaq: GFIG), Greenhill (NYSE: GHL), Gleacher (Nasdaq: GLCH), Goldman Sachs (NYSE: GS), Interactive Brokers (Nasdaq: IBKR), INTL FCStone (Nasdaq: INTL), Intersections (Nasdaq: INTX), Investment Technology (NYSE: ITG), Invesco (NYSE: IVZ), Jefferies (NYSE: JEF), JMP Group (NYSE: JMP), Janus Capital (NYSE: JNS), KBW (NYSE: KBW), Knight Capital (NYSE: KCG), Lazard (NYSE: LAZ), Legg Mason (NYSE: LM), LPL Investment (Nasdaq: LPLA), Ladenburg Thalmann (AMEX: LTS), Mastercard (NYSE: MA), Moody’s (NYSE: MCO), MF Global (NYSE: MF), Moneygram (NYSE: MGI), MarketAxess (Nasdaq: MKTX), Marlin Business Services (Nasdaq: MRLN), Morgan Stanley (NYSE: MS), MSCI (Nasdaq: MSCI), MGIC Investment (NYSE: MTG), NewStar Financial (Nasdaq: NEWS), National Financial Partners (NYSE: NFP), Nelnet (NYSE: NNI), Northern Trust (Nasdaq: NTRS), NetSpend (Nasdaq: NTSP), Ocwen Financial (NYSE: OCN), Oppenheimer (NYSE: OPY), optionsXpress (Nasdaq: OXPS), PICO (Nasdaq: PICO), Piper Jaffray (NYSE: PJC), PMI Group (NYSE: PMI), Penson Worldwide (Nasdaq: PNSN), Portfolio Recovery (Nasdaq: PRAA), Raymond James (NYSE: RJF), SEI Investments (Nasdaq: SEIC), Stifel Financial (NYSE: SF), Safeguard Scientifics (NYSE: SFE), State Street (NYSE: STT), SWS (NYSE: SWS), T. Rowe Price (Nasdaq: TROW), Visa (NYSE: V) and Virtus Investment Partners (Nasdaq: VRTS).

Please see our disclosures at the Wall Street Greek website and author bio pages found there. This article and website in no way offers or represents financial or investment advice. Information is provided for entertainment purposes only.

Risk Being Appropriately Priced in to Housing Stocks

Over the last few months, as I’ve been warning that macroeconomic issues would present a new stumbling block for real estate, did you take heed? While I suggested that the operating gains of the large publicly traded builders would not be enough to guard their shares from market discounting on economic concerns, did you take profits? Last week, when I said much too much had been made of the latest increases in new and existing home sales, did you pay attention? Well, I hope you will now.

Our founder earned clients a 23% average annual return over five years as a stock analyst on Wall Street. "The Greek" has written for institutional newsletters, Businessweek, Real Money, Seeking Alpha and others, while also appearing across TV and radio. While writing for Wall Street Greek, Mr. Kaminis presciently warned of the financial crisis.

Relative tickers include: SPDR S&P Homebuilders (NYSE: XHB), Toll Brothers (NYSE: TOL), PulteGroup (NYSE: PHM), D.R. Horton (NYSE: DHI) and K.B. Home (NYSE: KBH).

Real Estate Update

Last week, I said the latest modest home sales increases came on dreadfully low levels of activity, and that the real estate market was about to “contract a lethal infection” anyway. The latest data reported last week indicated still sickly pricing with a surprise decline in pending home sales to boot, leaving the situation in about the same stagnant place. After reviewing the entirety of the week’s housing data, I reiterate that the housing market seems stabilized currently, but I continue to raise the alarm about new trouble to come. That said, for those seeking a first home (shelter) or rental income producing property, and with the financial slack and income stream to support it even if a job were lost, housing affordability dictates purchase; especially if a distressed property without excess debt burden is targeted.

Last week, the Pending Home Sales Index dipped month-to-month, but continued an uptrend against the prior year. A quick study of the pending home sales chart should prove comforting to those who were caught off guard by April’s decline. The month produced a -5.5% slip against March, but was actually up 14.4% over the prior year. In fact, April marked the twelfth consecutive month of year-over-year improvement. Unfortunately though, that fact does not preclude a new trend from starting on a different path. Regionally speaking, the monthly decline was fueled largely by a 12% decline in the West and a 6.8% drop in the South. Midwestern activity slipped 0.3%, while the Northeast posted a 0.9% gain.

According to Lawrence Yun, the Chief Economist of the National Association of Realtors (NAR), housing inventory levels are at a point inspiring to home prices. Yun says that inventory levels at about 6 months supply are historically supportive of 3% to 5% annual home price appreciation. Though, the Standard & Poor’s/Case Shiller Home Price Index, reported last week for March, was not supportive of that argument.

The report’s city groupings, with indexes broken out for 10 and 20-city composites, declined on an annual basis by 2.8% and 2.6% in March, respectively. Still, some investors found solace in the month-to-month changes. The 10-City Composite declined by 0.1% from February and the broader reaching 20-City Composite was relatively unchanged. I suppose the celebration of such mediocre results is a sign of how low we have set the bar for real estate. Still, certain markets have real reason to rejoice. The metropolitan statistical areas (MSA) of Charlotte, Dallas, Denver, Detroit, Miami, Minneapolis and Phoenix saw annual rates of rise in March. Phoenix is even dealing with a housing shortage. Twelve cities saw home price rise in March over February, while seven experienced decline and one stayed the same.

The Mortgage Bankers Association (MBA) reported its Weekly Applications Survey Wednesday, showing mortgage applications for the purchase of a home declined by 0.6% in the week ending May 25, despite record low mortgage rates. However, even refinancing activity dropped off as Americans prepared for the Memorial Day holiday weekend.

Friday offered Construction Spending data to round out the week’s news flow. While the media painted this report as another negative for housing because the 0.3% growth reported for April fell slightly short of economists’ views, the truth is that it was not. That’s because residential construction increased 2.6% over March, and single-family projects were 1.8% higher.

The housing market is improving, but that’s insignificant now to investors in homebuilders, who are watching their shares retrace gains at quite a pace. The SPDR S&P Homebuilders (NYSE: XHB) fell 5.7% Friday and is down 12.9% off its recently set peak. The shares are lower despite the stabilized housing market and without regard for the market share gains of the large publicly traded builders like Toll Brothers (NYSE: TOL), PulteGroup (NYSE: PHM), D.R. Horton (NYSE: DHI) and K.B. Home (NYSE: KBH). It’s because of U.S. macroeconomic concerns, just like I wrote it would be over the course of the last several months.

The market knows that the cyclical housing sector with its high-beta homebuilder shares is vulnerable, especially after the group’s nascent climb. With the unemployment rate reported Friday deteriorated, investors are finally paying heed to the effects of European struggle upon the American and global economy. With so much hanging in the balance this June, risk is being appropriately priced in.

Editor's Note: Article should interest investors in Investors Title (Nasdaq: ITIC), Freddie Mac (OTC: FMCC.OB), Fannie Mae (OTC: FNMA.OB), UltraShort Real Estate ProShares (NYSE: SRS), Ultra Real Estate ProShares (NYSE: URE), ING Clarion Global Real Estate Income Fund (NYSE: IGR), Xinyuan Real Estate Co. (NYSE: XIN), Rydex Real Estate Fund H (Nasdaq: RYHRX), T. Rowe Price Real Estate Fund (Nasdaq: TRREX), Toll Brothers (NYSE: TOL), Hovnanian (NYSE: HOV), D.R. Horton (NYSE: DHI), Beazer Homes (NYSE: BZH), Lennar (NYSE: LEN), K.B. Homes (NYSE: KBH), Pulte Homes (NYSE: PHM), NVR Inc. (NYSE: NVR), Gafisa SA (NYSE: GFA), MDC Holdings (NYSE: MDC), Ryland Group (NYSE: RYL), Meritage Homes (NYSE: MTH), Brookfield Homes (NYSE: BHS), Standard Pacific (NYSE: SPF), M/I Homes (NYSE: MHO), Orleans Homebuilders (AMEX: OHB), Vanguard REIT Index ETF (NYSE: VNQ), PNC Bank (NYSE: PNC), J.P. Morgan Chase (NYSE: JPM), Hooker Furniture (Nasdaq: HOFT), Ethan Allen (NYSE: ETH), Pier 1 Imports (NYSE: PIR), Williams Sonoma (NYSE: WSM), Home Depot (NYSE: HD), Lowes (NYSE: LOW), Nasdaq: XNFZX, Nasdaq: FSAZX, Avatar Holdings (Nasdaq: AVTR), Apartment Investment & Management (NYSE: AIV), Equity Residential (NYSE: EQR), Avalonbay Communities (NYSE: AVB), UDR Inc. (NYSE: UDR), Essex Property Trust (NYSE: ESS), Camden Property Trust (NYSE: CPT), Senior Housing Properties (NYSE: SNH), BRE Properties (NYSE: BRE), Home Properties (NYSE: HME), Mid-America Apartment (NYSE: MAA), Equity Lifestyle Properties (NYSE: ELS), American Campus Communities (NYSE: ACC), Colonial Properties (NYSE: CLP), American Capital Agency (Nasdaq: AGNC), Sun Communities (NYSE: SUI), Associated Estates (NYSE: AEC), PennyMac Mortgage (NYSE: PMT), Two Harbors (AMEX: TWO), Simon Property Group (NYSE: SPG).

Please see our disclosures at the Wall Street Greek website and author bio pages found there. This article and website in no way offers or represents financial or investment advice. Information is provided for entertainment purposes only.

Housing Heals Before Contracting Lethal Infection

Much has been made about the latest increases in new and existing home sales, much too much. Modest increases in activity from dreadfully low levels during a period when seasonality should spur growth is a low-bar leap. Though, I think it is clear based on the data that the housing market is finally overcoming the burden of the bubble. More importantly, though, a storm is gathering over yonder, and the future concerns me more today than this past April can enthuse me. Today’s action in homebuilders and financials, with the SPDR S&P Homebuilders (NYSE: XHB) and Financial Select Sector SPDR (NYSE: XLF) each off more than 1%, seems to say that you finally agree. I’m glad to have you on board Mr. Market; now buckle up.

Our founder earned clients a 23% average annual return over five years as a stock analyst on Wall Street. "The Greek" has written for institutional newsletters, Businessweek, Real Money, Seeking Alpha and others, while also appearing across TV and radio. While writing for Wall Street Greek, Mr. Kaminis presciently warned of the financial crisis.

Relative tickers include Investors Title (Nasdaq: ITIC), Bank of America (NYSE: BAC), Freddie Mac (OTC: FMCC.OB), Fannie Mae (OTC: FNMA.OB), Goldman Sachs (NYSE: GS), Morgan Stanley (NYSE: MS), Wells Fargo (NYSE: WFC), Toronto Dominion (NYSE: TD), UltraShort Real Estate ProShares (NYSE: SRS), Ultra Real Estate ProShares (NYSE: URE), ING Clarion Global Real Estate Income Fund (NYSE: IGR), Xinyuan Real Estate Co. (NYSE: XIN), Rydex Real Estate Fund H (Nasdaq: RYHRX), T. Rowe Price Real Estate Fund (Nasdaq: TRREX), Hovnanian (NYSE: HOV) and Beazer Homes (NYSE: BZH).

Housing Healing, Facing Infection

New Home Sales were reported Wednesday for the month of April and Existing Home Sales were reported Tuesday for the same span. The XHB caught a breeze on the first report, but was unable to ride the hot air for a second day. The shares of homebuilders Toll Brothers (NYSE: TOL), Ryland Group (NYSE: RYL), PulteGroup (NYSE: PHM), K.B. Home (NYSE: KBH), D.R. Horton (NYSE: DHI) and Lennar (NYSE: LEN) were mixed Wednesday, though housing related shares were mostly lower. Some, like Toll Brothers (NYSE: TOL) benefitted from company specific news. Still, despite the market share driven rise of the like, I say buyer beware, because the macroeconomic environment will sink all cyclical ships. That’s why the modest increases in sales activity in April, while they do show real recovery in real estate, will draw no capital from my store today.

The U.S. Department of Housing and Urban Development reported a 3.3% increase in new home sales in April, but that only brought the annualized pace of sales up to a measly pace of 343K. Granted, that was 9.9% better than the pathetic production of April 2011.

Through years of attrition, the standing inventory of decaying new construction has dwindled, with 146K fresh homes estimated for sale currently, or 5.1 months supply at the current pace of sales. That’s again better than March’s 5.2 months and last April’s 6.7 months store. The pace of sales is finally benefiting from the clearance of the wreckage of the housing bubble (read foreclosed and bank owned property). This view is also supported by a median price increase seen in existing home sales, which arose last month on a better mix of properties sold. That data would indicate that there’s an increasing portion of non-distressed property selling through. The number of new homes for sale is thin against last April’s 174K, so the builders would be nicely positioned now if not for the distressed global macroeconomic environment that is offering contradicting information to the investment decision generally.

Existing Home Sales nearly equaled new home sales in their increase, rising 3.4% in April and 10% against the prior year. Single-family home sales, which for many better reflect the true American home market, rose 3.0% and were 9.9% higher than last year. Inventory was up, but the Chief Economist of the National Association of Realtors (NAR), Lawrence Yun, clarified why. He said that April historically drives and leads the year in homes for sale. This year, April marked a 9.5% increase in homes for sale, to 2.54 million. At the current pace of sales, that represents a 6.6-month supply, up from 6.2 in March.

Fear not (at least not about this), as home price data ensures that the increase was not driven by distressed properties, but by better demand drawing sellers. In fact, shortages have sprung up in the hardest hit areas, like Phoenix, Arizona and Las Vegas, Nevada. The median price of an existing home for sale was pulled higher by all this, rising 10.1% year-to-year, to $177,400. Again, this was due to the better mix of homes for sale, not general price increase, so don’t go betting on a new housing lust because of it. Yet, other data-points also showed a change for the better. All-cash sales fell to 29% of transactions in April, down from 32% in March. Investors accounted for 20% of all purchases, versus 21% in March. And first-time buyers rose to 35% of all purchasers in April from 33% in March. These are all signs of a normalizing and recovering market.

Congratulations real estate market, you’re getting better just as we contract a lethal infection from European trash. It’s like recovering from illness, but contracting a dangerous disease just before your release from the hospital. All this good news about April is enthusing, but the latest data out of the Mortgage Bankers Association shows a slowing of mortgage application activity for home purchases in May, despite record low mortgage rates. Oh, Americans are benefiting from European strife by refinancing and lowering their debt costs, but they’re not buying homes according to the latest data from the MBA. Why do you suppose that is, if all is really hunky-dory? It’s the economy stupid!

I must have said it a million times over the last year, but Mr. Market is finally listening. America sells 20% of its exported goods into Europe, which just barely kept out of formal recession territory in the first quarter. Meanwhile, economic bifurcation has driven political fragmentation, which now threatens to break apart the euro-zone. The first effects of economic contagion have been felt from China to the United States, and our still vulnerable economy seems to be sniffling more and more. It’s precisely the wrong time to start a war, and yet, the pressure is intensifying upon one of the world’s most important suppliers of fuel, which also has the ability to disrupt an even more important spigot. Investors are selling stocks? Go figure!

Editor's Note: Article should interest investors in Investors Title (Nasdaq: ITIC), Bank of America (NYSE: BAC), Freddie Mac (OTC: FMCC.OB), Fannie Mae (OTC: FNMA.OB), Goldman Sachs (NYSE: GS), Morgan Stanley (NYSE: MS), Wells Fargo (NYSE: WFC), Toronto Dominion (NYSE: TD), UltraShort Real Estate ProShares (NYSE: SRS), Ultra Real Estate ProShares (NYSE: URE), ING Clarion Global Real Estate Income Fund (NYSE: IGR), Xinyuan Real Estate Co. (NYSE: XIN), Rydex Real Estate Fund H (Nasdaq: RYHRX), T. Rowe Price Real Estate Fund (Nasdaq: TRREX), Toll Brothers (NYSE: TOL), Hovnanian (NYSE: HOV), D.R. Horton (NYSE: DHI), Beazer Homes (NYSE: BZH), Lennar (NYSE: LEN), K.B. Homes (NYSE: KBH), Pulte Homes (NYSE: PHM), NVR Inc. (NYSE: NVR), Gafisa SA (NYSE: GFA), MDC Holdings (NYSE: MDC), Ryland Group (NYSE: RYL), Meritage Homes (NYSE: MTH), Brookfield Homes (NYSE: BHS), Standard Pacific (NYSE: SPF), M/I Homes (NYSE: MHO), Orleans Homebuilders (AMEX: OHB), Vanguard REIT Index ETF (NYSE: VNQ), PNC Bank (NYSE: PNC), J.P. Morgan Chase (NYSE: JPM), Hooker Furniture (Nasdaq: HOFT), Ethan Allen (NYSE: ETH), Pier 1 Imports (NYSE: PIR), Williams Sonoma (NYSE: WSM), Home Depot (NYSE: HD), Lowes (NYSE: LOW), Nasdaq: XNFZX, Nasdaq: FSAZX, Avatar Holdings (Nasdaq: AVTR), Apartment Investment & Management (NYSE: AIV), Equity Residential (NYSE: EQR), Avalonbay Communities (NYSE: AVB), UDR Inc. (NYSE: UDR), Essex Property Trust (NYSE: ESS), Camden Property Trust (NYSE: CPT), Senior Housing Properties (NYSE: SNH), BRE Properties (NYSE: BRE), Home Properties (NYSE: HME), Mid-America Apartment (NYSE: MAA), Equity Lifestyle Properties (NYSE: ELS), American Campus Communities (NYSE: ACC), Colonial Properties (NYSE: CLP), American Capital Agency (Nasdaq: AGNC), Sun Communities (NYSE: SUI), Associated Estates (NYSE: AEC), PennyMac Mortgage (NYSE: PMT), Two Harbors (AMEX: TWO), Simon Property Group (NYSE: SPG).

Please see our disclosures at the Wall Street Greek website and author bio pages found there. This article and website in no way offers or represents financial or investment advice. Information is provided for entertainment purposes only.

Real Estate or Stocks in 2012?

How does an investor assess risk? How does an investor identify potential problems with the stocks of the firms in one's portfolio? For instance, is there exposure to Greece, Spain, Ireland or Turkey? Will the company experience parts shortages from Japan or Myanmar? What are the currency implications of an appreciating or depreciating US Dollar on corporate profits? Can the record profits be repeated year after year, after year, to justify the P/E that reflects that same growth? Labor problems in China, union problems in Europe, and fluctuating transportation and commodity costs exasperate attempts at research. Most of these issues are outside of the average investor’s ability to foresee or control. Furthermore, the stock market's movements seem to be faster going down than going up; months of steady improvement can be destroyed in the matter of a few days, causing extreme angst.

Relative tickers: SPDR Dow Jones Industrial Average (NYSE: DIA), SPDR S&P 500 (NYSE: SPY), PowerShares QQQ Trust (Nasdaq: QQQ), ProShares Short Dow 30 (NYSE: DOG), ProShares Ultra Short S&P 500 (NYSE: SDS), ProShares Ultra QQQ (NYSE: QLD), NYSE Euronext (NYSE: NYX), The NASDAQ OMX Group (Nasdaq: NDAQ), Intercontinental Exchange (NYSE: ICE), E*Trade Financial (Nasdaq: ETFC), Charles Schwab (Nasdaq: SCHW), Asset Acceptance Capital (Nasdaq: AACC), Affiliated Managers (NYSE: AMG), Ameriprise Financial (NYSE: AMP), TD Ameritrade (Nasdaq: AMTD) and Calamos Asset Management (Nasdaq: CLMS).

Real Estate or Stocks?

With the possibility of a global recession and a European depression, the prospects for stocks seem to be limited. Opinions range from a mild downturn to an economic collapse; however, there are very few forecasting an immediate return to global growth. The financial and social burden caused by debt is escalating as additional debt is used to service existing debt, compounding the problem. Tax revenue is being diverted from essential social services and fiscal incentives used to promote employment to totally non-productive interest payments. As more debt is added, the portion of the revenue collected and allocated to debt service is expanding exponentially.

The world’s governments are essentially borrowing at 0%, but when the repression of rates comes to an end, rates will rise to their true market level and the debt service will overwhelm the economies of the globe. Rates have been artificially lowered to force conservative cash into the economy in search of a riskier return, but eventually true market forces will prevail and the ensuing result will be explosive. Holders of Treasury Bonds have enjoyed extraordinary returns, receiving both interest payments and capital gains as rates have been driven down by the Federal Reserve's “Operation Twist”. Holders of Greek, Spanish, Portuguese, and Italian bonds felt very comfortable just a mere 24 months ago, but now things are radically different for them. Understandably, Treasury Bonds offer protection from a deflating environment, and while backed by the world's reserve currency their safety should be assured. The key word here is “should”. There exist two possibilities of which neither is pretty!

Currently, the 30-year Treasury Bond rate is 3%. The Federal Reserve has been pushing the rate down; a slight rise to 4% would significantly reduce the value of the bond. Should the rates rise to 5% or 6%, which is a more normal rate historically speaking, the ensuing capital loss could be as high as 50%. If inflation or even inflationary expectations started to brew, the losses could be staggering. Events across Europe could force weaker nations to seek “bankruptcy protection,” and default on their debt. Chaos would ensue, but eventually order would be restored and a pathway to recovery established.

The calamity of a default might be considered the lesser of two evils. Default and nine months of chaos may be preferable over 10 to 20 years of austerity. Should default become an acceptable option, then a cascade of nations, provinces, states, municipalities, localities, councils, and corporations could default. It is then not totally unthinkable that our great reserve currency might also default to preserve its integrity. As unthinkable as a global default might be, it is a possibility that needs to be considered, as it would allow for recovery.

Accompanying recovery would be inflation, as everything would be adjusting to new currency values and things would be in demand. Perhaps the rise of gold and silver over the last decade in an obviously deflating economy is forecasting turmoil in fiat currency and government obligations. Commodities would eventually recover: gas, oil, minerals, lumber, farms, food, water, shelter, etc., causing inflation and further pressuring debt instruments. The silver lining of a default would be the balancing of budgets worldwide with a path to recovery unveiled. This recession that has started in Europe is different from past downturns; it is not controlled by the Federal Reserve regulating rates and money supply. This is a potential cyclic event to correct global excesses.

Long-term treasuries still offer protection of capital in a very uncertain world. They still provide a small income stream to supplement other revenue sources. A portfolio of bonds needs to be risk managed and an “exit strategy” needs to be in place. Should the U.S. slide into recession, interest rates on 30-year bonds could slide even further producing capital gains. However, there will be a time to take profits and not look back. Another advantage of the repression of rates caused by the Federal Reserve is the opportunity to lock in long-term money and leverage cash flowing rentals.

Ironically, the Real Estate Market may be the asset class that preserves and grows wealth. Real estate as an asset class has been devastated and much of the risk of decline has been mitigated by the severe market correction of the past few years. Population pressure will eventually absorb all of the excess and pockets of shortages that are starting to appear most notably in my home market of Phoenix, AZ, one of the most affected markets in the nation. The strategy to employ would be to accumulate rentals in second and third move-up properties in discounted markets with good forward growth prospects, and use current low interest 30-year fixed rate mortgages finance them. The possibility of rising rates and/or market turmoil will curtail new construction and positively enhance the existing housing market. Furthermore, Cap Rates of 5-7% are available increasing to 8-10% cash on cash with use of a simple Fixed Rate Mortgage. This cash flow will be exceptionally important in any economic slowdown as rates will continue to compress and yield will become elusive.

A key component of a 5-year holding horizon is the inflation protection afforded by the “real” in real estate, as well as the growth in revenue potential as scarcities develop. The revenue stream may become of utmost importance as other traditional sources of revenue and paid benefits are curtailed or jeopardized: CD's, money markets, insurance guaranteed annuities funded by sovereign debt, state and municipal pensions may also be at risk if defaults occur. Cuts in Social Security and Medicare may be needed to reduce entitlement costs. Distressed properties discounted below replacement cost are still available, but financial institutes are working hard to clear the properties and take the losses this year. Any “underwater” residence or non-cash flowing investment property needs to be reviewed for liquidation via the “short sale” process while the market is still viable. Looking forward, costs are to be cut, debt is to be reduced, and reserves accumulated.

Article should interest investors in SPDR Dow Jones Industrial Average (NYSE: DIA), SPDR S&P 500 (NYSE: SPY), PowerShares QQQ Trust (Nasdaq: QQQ), ProShares Short Dow 30 (NYSE: DOG), ProShares Ultra Short S&P 500 (NYSE: SDS), ProShares Ultra QQQ (NYSE: QLD), NYSE Euronext (NYSE: NYX), The NASDAQ OMX Group (Nasdaq: NDAQ), Intercontinental Exchange (NYSE: ICE), E*Trade Financial (Nasdaq: ETFC), Charles Schwab (Nasdaq: SCHW), Asset Acceptance Capital (Nasdaq: AACC), Affiliated Managers (NYSE: AMG), Ameriprise Financial (NYSE: AMP), TD Ameritrade (Nasdaq: AMTD), BGC Partners (Nasdaq: BGCP), Bank of New York Mellon (NYSE: BK), BlackRock (NYSE: BLK), CIT Group (NYSE: CIT), Calamos Asset Management (Nasdaq: CLMS), CME Group (NYSE: CME), Cohn & Steers (NYSE: CNS), Cowen Group (Nasdaq: COWN), Diamond Hill Investment (Nasdaq: DHIL), Dollar Financial (Nasdaq: DLLR), Duff & Phelps (Nasdaq: DUF), Encore Capital (Nasdaq: ECPG), Edelman Financial (Nasdaq: EF), Equifax (NYSE: EFX), Epoch (Nasdaq: EPHC), Evercore Partners (NYSE: EVR), EXCorp. (Nasdaq: EZPW), FBR Capital Markets (Nasdaq: FBCM), First Cash Financial (Nasdaq: FCFS), Federated Investors (NYSE: FII), First Marblehead (NYSE: FMD), Fidelity National Financial (NYSE: FNF), Financial Engines (Nasdaq: FNGN), FXCM (Nasdaq: FXCM), Gamco Investors (NYSE: GBL), GAIN Capital (Nasdaq: GCAP), Green Dot (Nasdaq: GDOT), GFI Group (Nasdaq: GFIG), Greenhill (NYSE: GHL), Gleacher (Nasdaq: GLCH), Goldman Sachs (NYSE: GS), Interactive Brokers (Nasdaq: IBKR), INTL FCStone (Nasdaq: INTL), Intersections (Nasdaq: INTX), Investment Technology (NYSE: ITG), Invesco (NYSE: IVZ), Jefferies (NYSE: JEF), JMP Group (NYSE: JMP), Janus Capital (NYSE: JNS), KBW (NYSE: KBW), Knight Capital (NYSE: KCG), Lazard (NYSE: LAZ), Legg Mason (NYSE: LM), LPL Investment (Nasdaq: LPLA), Ladenburg Thalmann (AMEX: LTS), Mastercard (NYSE: MA), Moody’s (NYSE: MCO), MF Global (NYSE: MF), Moneygram (NYSE: MGI), MarketAxess (Nasdaq: MKTX), Marlin Business Services (Nasdaq: MRLN), Morgan Stanley (NYSE: MS), MSCI (Nasdaq: MSCI), MGIC Investment (NYSE: MTG), NewStar Financial (Nasdaq: NEWS), National Financial Partners (NYSE: NFP), Nelnet (NYSE: NNI), Northern Trust (Nasdaq: NTRS), NetSpend (Nasdaq: NTSP), Ocwen Financial (NYSE: OCN), Oppenheimer (NYSE: OPY), optionsXpress (Nasdaq: OXPS), PICO (Nasdaq: PICO), Piper Jaffray (NYSE: PJC), PMI Group (NYSE: PMI), Penson Worldwide (Nasdaq: PNSN), Portfolio Recovery (Nasdaq: PRAA), Raymond James (NYSE: RJF), SEI Investments (Nasdaq: SEIC), Stifel Financial (NYSE: SF), Safeguard Scientifics (NYSE: SFE), State Street (NYSE: STT), SWS (NYSE: SWS), T. Rowe Price (Nasdaq: TROW), Visa (NYSE: V) and Virtus Investment Partners (Nasdaq: VRTS).

Please see our disclosures at the Wall Street Greek website and author bio pages found there. This article and website in no way offers or represents financial or investment advice. Information is provided for entertainment purposes only.

Mortgage Refinancing Opportunity Born of Greek Strife

The troubles of Greece and Europe make for terrifying television indeed, and the horrible effects to real human life over there is difficult to bear. Yet, for many Americans, the effects to mortgage rates have been a Godsend. A flight to safety over the last week has driven U.S. Treasury demand, leading yields lower. As a result, mortgage rates have reached their lowest point in the history of the Mortgage Bankers Association (MBA) Weekly Application Survey. The MBA is already reporting a response in refinancing activity, which stands to benefit aggressive bankers, while lowering the cost of living for many Americans.

Our founder earned clients a 23% average annual return over five years as a stock analyst on Wall Street. "The Greek" has written for institutional newsletters, Businessweek, Real Money, Seeking Alpha and others, while also appearing across TV and radio. While writing for Wall Street Greek, Mr. Kaminis presciently warned of the financial crisis.

Relative tickers include Bank of America (NYSE: BAC), J.P. Morgan Chase (NYSE: JPM), Wells Fargo (NYSE: WFC), Citigroup (NYSE: C), Fannie Mae (OTC: FNMA.OB), Freddie Mac (OTC: FMCC.OB), U.S. Bancorp (NYSE: USB), PHH Corp. (NYSE: PHH), Flagstar (NYSE: FBC) and BB&T (NYSE: BBT).

Americans Find Mortgage Refinancing Opportunity

In the week ending May 11, 2011, the MBA’s Market Composite Index of mortgage application volume increased 9.2% on a seasonally adjusted basis. Behind the rise was a 13% drive higher in refinancing activity, as mortgage rates dipped into record territory across the spectrum of loan types.

Each loan type marked record territory and saw effective rate decrease, except for FHA sponsored loans, which saw an effective rate rise. The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($417,500 or less) decreased to 3.96 percent, from 4.01 percent. The average contract interest rate for 30-year fixed-rate mortgages with jumbo loan balances (greater than $417,500) decreased to 4.20 percent, from 4.29 percent. The average contract interest rate for 30-year fixed-rate mortgages backed by the FHA decreased to 3.75 percent, from 3.81 percent. The average contract interest rate for 15-year fixed-rate mortgages decreased to 3.26 percent, from 3.29 percent.

Over the last six months, mortgage refinancing has increased by 50% on the Home Affordable Refinance Program (HARP), driven by Fannie Mae (OTC: FNMA.OB) and Freddie Mac (OTC: FMCC.OB). The program was designed to assist homeowners in refinancing their mortgages even if they owe more money than the home’s current value. Something like a third of all refinancing applications have been HARP driven lately. However, over the last week, the MBA reports the HARP share of refinances fell to 28%, from 30%, as conventional refinancing increased 14% on the week versus the 4% increase of HARP driven activity. This is the direct result of the drop in mortgage rates.

The nation’s most important mortgage originators in 2011 ranked Wells Fargo (NYSE: WFC), Bank of America (NYSE: BAC), J.P. Morgan Chase (NYSE: JPM), Citigroup (NYSE: C), Ally, PHH Corp. (NYSE: PHH), U.S. Bancorp (NYSE: USB), Quicken, Flagstar Bancorp (NYSE: FBC) and BB&T (NYSE: BBT). Perhaps helped by today’s MBA news, the shares of the top four were up between 1% and 2%.

Still, purchase activity, or mortgage applications filed for the purchase of a home, decreased 4.2% on a seasonally adjusted basis last week. While refinancing is booming, the housing market remains sickly, and I just suggested homebuilder shareholders take profits on Tuesday’s builder confidence inspired climb higher for stocks including Toll Brothers, Ryland Group and others.

While it’s a shame that the driver of the day’s helpful mortgage activity is the direct result of the strife of others overseas, Americans might help themselves now by lowering their cost of living. Considering the economic situation I see developing, it’s all the more a good idea.

Editor's Note: Article should interest investors in Bank of America (NYSE: BAC), Freddie Mac (OTC: FMCC.OB), Fannie Mae (OTC: FNMA.OB), Goldman Sachs (NYSE: GS), Morgan Stanley (NYSE: MS), Wells Fargo (NYSE: WFC), Toronto Dominion (NYSE: TD), BB&T (NYSE: BBT), CIT (NYSE: CIT), Bank United (NYSE: BKU), First Citizens (OTC: FCNCA.PK), Synovus (NYSE: SNV), United Bankshares (Nasdaq: UBSI), Hampton Roads Bankshares (Nasdaq: HMPR), WesBanco (Nasdaq: WSBC), City Holding (Nasdaq: CHCO), Sandy Spring (Nasdaq: SASR), First Citizens (OTC: FCBN.OB), SCBT Financial (Nasdaq: SCBT), Wilmington Trust (NYSE: WL), WSFS Financial (Nasdaq: WSFS), Southside Bancshares (Nasdaq: SBSI), Stellar One (Nasdaq: STEL), Union First Market (Nasdaq: UBSH), Eagle Bancorp (Nasdaq: EGBN), First Bancorp (Nasdaq: FBNC), Ameris (Nasdaq: ABCB), The Bancorp (Nasdaq: TBBK), First Community (Nasdaq: FCBC), Capital City (Nasdaq: CCBG), Financial Institutions (Nasdaq: FISI), National Bankshares (Nasdaq: NKSH), Citizens & Northern (Nasdaq: CZNC), Charter Financial (Nasdaq: CHFN), Seacoast Banking (Nasdaq: SBCF), TIB Financial (Nasdaq: TIBB), American National (Nasdaq: AMNB), United Community (Nasdaq: UCBI), Middleburg Financial (Nasdaq: MBRG), Heritage Financial (Nasdaq: HBOS), Zions Bancorp (Nasdaq: ZION), East West Bancorp (Nasdaq: EWBC), City National (NYSE: CYN), Bank of Hawaii (NYSE: BOH), SVB Financial (Nasdaq: SIVB), Westamerica (Nasdaq: WABC), Cathay General (Nasdaq: CATY), Umpqua (Nasdaq: UMPQ), Glacier Bancorp (Nasdaq: GBCI), Pacific Capital (Nasdaq: PCBC), PacWest (Nasdaq: PACW), Western Alliance (NYSE: WAL), First National Alaska (OTC: FBAK.OB), First Interstate Bancsystem (Nasdaq: FIBK), Nara (Nasdaq: NARA), West Coast (Nasdaq: WCBO), TriCo (Nasdaq: TCBK), Territorial (Nasdaq: TBNK), Washington Banking (Nasdaq: WCBO), Bank of Marin (Nasdaq: BMRC), Hanmi (Nasdaq: HAFC), PNC Bank (NYSE: PNC), J.P. Morgan Chase (NYSE: JPM), United Bankshares (Nasdaq: UBSI), Bank of New York Mellon (NYSE: BK), MB Financial (Nasdaq: MBFI), Astoria Financial (NYSE: AF), New York Community (NYSE: NYB), Hudson City (Nasdaq: HCBK), People’s United (Nasdaq: PBCT), First Niagra (Nasdaq: FNFG), Capitol Federal (Nasdaq: CFFN), Washington Federal (Nasdaq: WFSL), Investor’s Bancorp (Nasdaq: ISBC), Northwest Bankshares (Nasdaq: NWBI), Sterling Financial (Nasdaq: STSA), Ocwen (NYSE: OCN), Flagstar (NYSE: FBC), Provident (NYSE: PFS), Colombia Banking (Nasdaq: COLB), Kearny (Nasdaq: KRNY), Brookline (Nasdaq: BRKL), Dime Community (Nasdaq: DCOM), Flushing Financial (Nasdaq: FFIC), Danvers (Nasdaq: DNBK).

Please see our disclosures at the Wall Street Greek website and author bio pages found there. This article and website in no way offers or represents financial or investment advice. Information is provided for entertainment purposes only.