This post was contributed by a community member. The views expressed here are the author's own.

Health & Fitness

What Those Collapsing Homebuilder Stocks Are Trying to Tell Us

Finally, some good news for the U.S. economy?

The National Association of Realtors (NAR) just reported July existing-home sales increased in the U.S. housing market to an annual rate of 5.39 million homes—up 17.2% from July of 2012. (Source: National Association of Realtors, August 21, 2013.)

And those companies that are closely related to the housing market like The Home Depot, Inc. (NYSE/HD) and Lowe’s Companies Inc. (NYSE/LOW) reported better-than-expected second-quarter earnings. All these companies cited the housing “recovery” as the reason their earnings did better.

Find out what's happening in Cranstonwith free, real-time updates from Patch.

So does this mean it’s a good time to buy homebuilder stocks, or to jump into companies related to the housing market? My answer is a resounding, “NO.”

In fact, the housing market is flashing four warning signs that the so-called “recovery” is losing steam.

Find out what's happening in Cranstonwith free, real-time updates from Patch.

First-time home buyers are not entering the housing market. Last month, first-time home buyers accounted for only 29% of all existing-home sales in the housing market, down 15% from July 2012. In a normal market, you’d want t first-time home buyers to account for 40% of all sales.

Mortgage rates are rising quickly. The rate on the standard 30-year fixed mortgage hit 4.6% this morning—up sharply from about 3.5% at the beginning of 2013

For months (in these pages), I’ve been saying interest rates would start to creep up. Even the NAR acknowledges the problem with higher interest rates. Its chief economist, Lawrence Yun, said this week, “Mortgage interest rates are at the highest level in two years, pushing some buyers off the sidelines…the initial rise in interest rates provided strong incentive for closing deals. However, further rate increases will diminish the pool of eligible buyers.” (Source: Ibid.)

The slowing U.S. economy, as evidenced by meager corporate earnings and revenue growth, coupled with jobs growth principally in the low-paying retail and service sectors, will put pressure on the housing market.

We’ve removed the ability to reply as we work to make improvements. Learn more here

The views expressed in this post are the author's own. Want to post on Patch?