Sinking Homebuilder Sentiment Might Point to Trouble Up Ahead

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By Jacob Maslow

Row of Foreclosure Home For Sale Real Estate Signs in Front of Houses.The US housing market is very uneven. While there are many property markets that are red-hot right now with skyrocketing home prices and rents, there are huge areas in the US where the real estate market is all but comatose. It is really quite an uneven market out there, and this is reflected in the two-month long decline in home-builder sentiment.

Generally speaking, a home-builder sentiment of 50 and above is considered favorable. Anything lower than this means that the home-building market and key parts of the real estate market is either headed for trouble or there are signs of trouble up ahead. Well, home-builder sentiment sank for the second month in the row. We’re now at the 55 mark.

While we’re still five points up, it’s unwise to bet against the possibility that the sentiment will get worse with time. Why? Not enough millennials are buying their own homes. Too many millennials are more than content to rent. This is a serious problem. You need a huge generational shift of homebuyers to keep the national home building and real estate market going at a healthy clip. This is not happening.

Not surprisingly, the Obama Administration has published new rules for Fannie Mae to make it easier for new homeowners to move into their new house. It remains to be seen whether these incentives would be enough. It’s one thing for the government to try to incentivize people to buy a home; it’s another for the private lending industry to actually make those loans.

Thanks to public policy considerations, the real estate bust of 2008 materialized. I know that’s a quite controversial statement but there are really no two ways about it. It was a government-created implosion of the real estate market. If the public policy is to get as many people buying their own homes, you’re always going to run into the moral hazard of people applying who are not qualified. It appears that the dust has yet to settle from the fiasco. If US job numbers continue to improve, I suspect the housing market will dramatically improve across the board. Chances of that happening are not exactly high.

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