If ever an off-the-wall indicator existed to predict the fate of the U.S. housing market, I found it… You see, business is booming in one particular niche of the real estate industry - shrink-wrap.
That’s right. Contractors and developers are wrapping mothballed building projects in plastic, literally - from single-family homes to 25,000 square foot commercial properties.
The beneficiary? Privately-held Fast Wrap - a leader in shrink-wrap protection and weatherization. Traditionally its products are used to protect lawn furniture, cars, boats, motor homes or industrial vehicles from the elements. But now, the bulk of its new business comes from the real estate industry…
In recent months, the company has inked deals to shrink-wrap 240 homes in the Northeast, prompting management to double its sales expectations on the surging demand.
Sorry folks. If "shrink-wrapping" homes to preserve them for future use is suddenly a worthwhile idea, then there’s no end in sight to the demand destruction. It’s akin to airlines "grounding" aircraft during tough operating conditions… or oil drillers "cold-stacking" rigs when exploration plummets.
So if you’re thinking of diving into the real estate market to capitalize on the "unbelievable bargains" - via the stock market or your local neighborhood - think again. The outlook for the U.S. housing market remains grim. And the bargains will only get more compelling.
First, let me prove it. Then I’ll reveal a few ways to play the enduring housing market downturn…
Housing Market Showing Signs of Stability? Puh-lease!
The mainstream press would have us to believe a real estate market rebound is imminent. They keep glomming onto any data that shows the slightest sign of stability.
- For instance, Bloomberg jumped all over the July 1 report from the National Association of Realtors that showed pending sales for previously owned homes rose for the fourth consecutive month.
- Other outlets had a field day with the news out of the Mortgage Bankers Association that refinancings hit a three-month high in early July.
- And ditto for the news that foreclosures dropped 11% in the second quarter.
But these "signs of stabilization" are bogus. Or to beg, borrow and steal from value-investing legend, Whitney Tilson, they are the "mother of all head fakes."
Fact is, these short-term improvements were fabricated. They materialized because of temporary factors like the $8,000 first time homebuyer tax credit (set to expire November 30), artificially low interest rates (remember the Fed’s been buying Treasuries, en masse, since March to suppress rates) and government and bank moratoriums on foreclosures.
In the end, all this massive intervention is doing is propping up short-term results and prolonging the inevitable. Furthermore, to turn a blind eye to all this government meddling and pretend it’s not artificially influencing demand and prolonging foreclosures, would be irresponsible.
Don’t get me wrong. I’m happy to see an improvement in the market from bad to less bad.
