It's Not the Weather - The Housing Market Is Just Falling Apart

The housing market was at the nexus of the last financial crisis, and it may very well be the start of the next one, as well.

We've seen absolutely terrible data coming out of the housing market over the past few months.

But rather than acknowledge this for what it is — a breakdown brought about by the end of the Fed's stimulus program — perma-bulls and deniers are blaming it on the weather.

Quite frankly, that's the one of the dumbest things I've ever heard.

Mortgage applications to purchase homes have fallen more than 50% from a year ago and existing sales have been down for four straight months.

That's not because of the weather.

It's because stimulus measures enacted by the federal government and the U.S. central bank brought the housing market collapse to a premature halt.

You may recall some of the government subsidies, like those offered to first-time homebuyers. Those, in conjunction with low interest rates, low prices, and a deluge of distressed sales lured buyers back into the market.

But all of those things were temporary.

Distressed properties have been gobbled up by opportunistic investors, causing home prices to rise substantially.

U.S. home prices rose 24% from March 2012 to November 2013. They were up more than 10% in January, while sales of previously-owned homes fell to their lowest levels in 18 months.

Data on last month's new home sales is set to come out on Wednesday, and it will likely show a continuation of December's 7% drop.

It's not just prices, either. Mortgage rates are rising, too — a predictable outcome of increased sales and Fed tapering. The rate on the 30-year fixed mortgage was 4.43% in January, compared to the 3.41% offered to buyers a year ago.

These developments have absolutely nothing to do with the weather.

The only statistic that might be is new home starts, but even that's a stretch.

The number of housing starts plummeted by 16% in January compared to December — the biggest drop since February 2011. You might say inclement weather had something to do with that, until you see where the declines came from.

Housing starts in the Northeast, the area most affected by the snow, actually increased by 62% compared to December. It was the Midwest that held the data down, as new home construction there fell 68%.

So don't believe the weather chatter. It's a systemic problem that isn't going to move on with the Polar Vortex.

Fight on,

Jason Simpkins

@OCSimpkins on Twitter

Jason Simpkins is Assistant Managing Editor of the Outsider Club and Investment Director of Wall Street's Proving Ground, a financial advisory focused on security companies and defense contractors. For more on Jason, check out his editor's page. 

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