The Biggest Threat to the Housing Recovery

There are still plenty of factors that could disrupt housing.

Jul 6, 2014 at 9:55AM

Last Sunday, the U.S. men's soccer team saw a possible victory over Portugal disappear in the final seconds of a World Cup game. That kind of sudden, cruel twist has also become common in the economy over the past several years.

For that reason, despite a run of positive economic news that most recently includes a surge in new home sales, you have to be prepared for the possibility of a setback. If all goes well, the economy could be on track to restoring housing values, putting people back to work and bringing interest on savings accounts and other deposits back to a respectable level. But there are still plenty of factors that could disrupt things.

New home sales rise
The economy has been on a roll lately, and on June 24 the Census Bureau and Department of Housing and Urban Development announced that new home sales had surged by 18.6 percent in May. This gain is especially significant because housing sales had been essentially treading water over the prior year up to that point, and it remained to be seen whether the housing recovery was strong enough withstand last year's rise in mortgage rates.

This announcement puts May's new home sales 16.9 percent ahead of where they were a year earlier, despite the fact that current mortgage rates are about 60 basis points higher than they were in May 2013. In other words, the housing recovery is finally showing some staying power.

Couple this with strong employment growth in recent months, and things are going well. Where could an upset come from?

A stealthy attack
In that U.S. men's soccer game, the late counter-attack that led to Portugal's equalizing goal seemed to come out of nowhere. But the source of the scoring pass should have been no surprise -- it came from Cristiano Ronaldo, the reigning world player of the year.

Similarly, though economic upsets often take people by surprise, the source tends to be something that should have been somewhat predictable. In this scenario, the most likely suspect -- the player to keep your eye on -- may be inflation.

The inflation rate has already increased in each of the past three months. Now with conflict in the Middle East widening, higher oil prices could put more upward pressure on inflation.

While the Federal Reserve has been concerned about inflation being too low, higher inflation from rising oil prices would not be the solution they would like. Rather than being a sign of rising demand, it would represent the kind of commodity inflation that squeezes consumers and businesses alike, and ultimately suppresses broader economic activity. As for savings accounts, their interest rates might rise in such a scenario, but probably not enough to keep pace with inflation.

So, from home sales to employment, things seem to be going well for the economy. But keep your eyes on inflation. If something is going to mess this up, it's as likely a culprit as any.

This article originally appeared on

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4 in 5 Americans Are Ignoring Buffett's Warning

Don't be one of them.

Jun 12, 2015 at 5:01PM

Admitting fear is difficult.

So you can imagine how shocked I was to find out Warren Buffett recently told a select number of investors about the cutting-edge technology that's keeping him awake at night.

This past May, The Motley Fool sent 8 of its best stock analysts to Omaha, Nebraska to attend the Berkshire Hathaway annual shareholder meeting. CEO Warren Buffett and Vice Chairman Charlie Munger fielded questions for nearly 6 hours.
The catch was: Attendees weren't allowed to record any of it. No audio. No video. 

Our team of analysts wrote down every single word Buffett and Munger uttered. Over 16,000 words. But only two words stood out to me as I read the detailed transcript of the event: "Real threat."

That's how Buffett responded when asked about this emerging market that is already expected to be worth more than $2 trillion in the U.S. alone. Google has already put some of its best engineers behind the technology powering this trend. 

The amazing thing is, while Buffett may be nervous, the rest of us can invest in this new industry BEFORE the old money realizes what hit them.

KPMG advises we're "on the cusp of revolutionary change" coming much "sooner than you think."

Even one legendary MIT professor had to recant his position that the technology was "beyond the capability of computer science." (He recently confessed to The Wall Street Journal that he's now a believer and amazed "how quickly this technology caught on.")

Yet according to one J.D. Power and Associates survey, only 1 in 5 Americans are even interested in this technology, much less ready to invest in it. Needless to say, you haven't missed your window of opportunity. 

Think about how many amazing technologies you've watched soar to new heights while you kick yourself thinking, "I knew about that technology before everyone was talking about it, but I just sat on my hands." 

Don't let that happen again. This time, it should be your family telling you, "I can't believe you knew about and invested in that technology so early on."

That's why I hope you take just a few minutes to access the exclusive research our team of analysts has put together on this industry and the one stock positioned to capitalize on this major shift.

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David Hanson owns shares of Berkshire Hathaway and American Express. The Motley Fool recommends and owns shares of Berkshire Hathaway, Google, and Coca-Cola.We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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