Posted on 11/16/2006 1:47:11 AM PST by xtinct
Real estate downturns have a way of leading to recessions and stock market slumps. So far the damage has been limited, but the numbers keep getting worse, says Fortune's Jon Birger.
Tucked away in the briefcase of Liz Ann Sonders, chief investment strategist at Charles Schwab & Co., is a chart so scary she's hesitant to show it to investors. It plots the National Association of Home Builders' Housing Market index - a monthly measure of builder confidence - against the Standard & Poor's 500 stock market index, with a one-year lag.
It turns out that the mood of builders is a terrific stock market bellwether: The correlation between current builder confidence and future stock market returns over the past ten years is downright unnerving.
Not only did the NAHB index presage the start of the post-1994 bull market in stocks, but its decline starting in 1999 foreshadowed the equity market collapse that came the following year. Builder confidence rebounded in November 2001 - a year ahead of the stock market upswing that began in October 2002.
Why is Sonders worried now? Just look at the chart. Over the past year, the NAHB housing index plummeted 54 percent. Were stocks to follow suit, the S&P - 1400 in late October - would be trading below 700 this time next year.
(Excerpt) Read more at money.cnn.com ...
"Show me just what Mohammed brought that was new, and there you will find things only evil and inhuman, such as his command to spread by the sword the faith he preached." -Manuel II Paleologus
I'm beginning to wonder if Bush's obsession with scamnesty is actually a "quick fix" to the housing crash. Dump 100 million illegals on us as new "legals" over the next 10 years and all of a sudden there is a housing shortage. Leave the crime, poverty, and drain on taxpayers for someone else to worry about post-Jan. 2009.
"Show me just what Mohammed brought that was new, and there you will find things only evil and inhuman, such as his command to spread by the sword the faith he preached." -Manuel II Paleologus
http://qsi.cc/blog/archives/2006_09.html
September 30, 2006
A silly graph on a serious matter
In a post at the Volokh Conspiracy, David Bernstein links to a graph produced originally by Liz Ann Sonders, the Chief Investment Strategist at Schwab. The graph strikingly shows the relationship between the NAHB housing index and the S&P 500 index, with the clear implication being that equities are due for a big fall. It's certainly striking, but it's also very silly.
Three cycles does not a trend make. This way lies losses to bettors.
Well maybe not all that silly. Consumer spending is 70% of the US economy. When Consumers are feeling house-rich or house-poor, that does effect the economy in a significant way.
"Show me just what Mohammed brought that was new, and there you will find things only evil and inhuman, such as his command to spread by the sword the faith he preached." -Manuel II Paleologus
"Dump 100 million illegals on us as new "legals" over the next 10 years and all of a sudden there is a housing shortage."
I can see that.
Isn't over valuation also collecting higher property taxes?
Michael Moore promised us Democrats would improve everything,
even for Republican supporters.
http://www.adventuremoney.com/2006/11/06/misc/cnnmoney-vs-blog-blog-wins/
CNNMoney vs. Blog — Blog wins
Posted by Steve under Misc
Last week I read an interesting article that I almost mentioned here. The article, titled Can the economy survive the housing bust? was posted on CNNMoney and written by Jon Birger, senior writer at Fortune magazine. First, let’s look at how the article opens:
http://calculatedrisk.blogspot.com/2006/11/schwab-chart-builder-confidence-vs-sp.html
Once again, I don't like the way the chart was presented, and I don't think there is a long term correlation between the two series.
This has it reasons and the reasons are causing more damage then one might think.
The ongoing low interest monetary politics of the fed "reserve" is an accident waiting to happen.
They are fireing out capital that doesn't find productive business - so housing got extremely expensive.
Now that the economy might get involved they cannot even lower interest rates to stop a downwards momentum.
The fed did not stop the dollar from plummeting - asia did. They bought all these dollars and now worry what to do with them. If they get the intention that they might have to write off their planned earnings on interests and value of their dollar reserrves they will sell them.
This IS serious - buy gold.
I guess we'll soon see if that promise among a litany of other left-winged promises pans out. The voters wanted change, they got it.
Not all the voters wanted 'change'. We voted a straight Republican ticket and still ended up with Fast Eddie and lost Santorum.
"Show me just what Mohammed brought that was new, and there you will find things only evil and inhuman, such as his command to spread by the sword the faith he preached." -Manuel II Paleologus
I voted straight Republican as well. Retained both my Republican Legislator and U.S. House Representative, and lost a Republican Senator.
Maybe in some markets it will, but look at places in the world like New York City, Tokyo, London and Paris prices are always high and most likely stay that way.
That's not really related to whether housing boom/busts effect the economy/stock market and if so, and how much.
"Show me just what Mohammed brought that was new, and there you will find things only evil and inhuman, such as his command to spread by the sword the faith he preached." -Manuel II Paleologus
No, no, no, no, no. Note the date. That CNN story was pre-election. Haven't you noticed that AP and CNN have gone upbeat the last week? The economy has turned. It's morning in America.
And in an area where 25 percent of the homes were purchased on speculation and now are not selling, there are buyers that are dumping money into a second home instead of other places.
Rental prices on a new home that was purchased for $300,00 are between $1200 and $1800 a month - and they are still going unrented.
These are three bedroom 1800 to 2200 square foot homes that have never been lived in that are listed for rent as low as $1200.
That's serious negative rental cash flow.
my heart is breaking/sarc.
"No, no, no, no, no. Note the date. That CNN story was pre-election. Haven't you noticed that AP and CNN have gone upbeat the last week? The economy has turned. It's morning in America".
__________________________________________________________
I agree, it's just another example of mass hypnotism - perpetrated by the media. The gullible public is zombied once again.
Declining interest rates had the greater influence on first time home-buyer decisions. Then, in addition to speculators, home purchases took on mass hysterical qualities - much like "beanie babies"...some of the housing boom was irrational and therefore the "flatulence" should have been expected.
IMHO
In the Louisville Ky area we haven,t had much of a slowdown for any reason for at least 20 years. Now however it has plunged to 50% if we're lucky. I believe this started with the new fed chair's inflation fighting scheme combined with the media's constant harping on a housing bust. This always slows the economy, that's why the fed raises interest rates. Its not alwys fun to be in the industry the govt. uses to regulate the economy. It sure didn't help us in the elections either.
My neighbors bought their house 42 years ago for $11,000. They were asking $400,000 for it a few months ago but finally had to sell it for $371,000. I don't know how they will survive. /sarc
The Democrats got elected, isn't that just great for equity? Gas prices went up, my taxes went up already. Bureaucratic anticipation effect.
They cashed in at the top, relatively speaking. Still, any equity is hedge against fiat money.
It has a long long way to go before it becomes a "housing bust".
It's about time this housing hyper inflation period came to an end.
Depends how much they pay for a new home I suppose.... Things tend to equalize in that respect. So unless they own another $11,000 home they bought 42 years ago to move into, They really aren't making anything.
And now you know why buying more than one house is a good investment.
I'm in my early fifties, so I've seen several recessions. I've formed the firm opinion that recessions are caused and perhaps perpetuated in part by the comments of economists and soi-disant experts who appear in the mass media. If Joe Average hears a daily drumbeat from the press that says, "The economy is in trouble," he may disregard it at first, but eventually he will start to feel fearful. When Joe feels unease about the future he'll decide not to buy a new refrigerator, so the guys who make the refrigerator lose their jobs and can't buy a new car, which means the guys who build cars are out of work and can't buy a new hot tub, and so the commentators' dark speculations about the economy are a self-fulfilling prophecy.
We see the same thing today. I wish the experts would all shut up and stop scaring everyone. In that case there might still be a recession but real economic problems would cause it, not hysteria.
Sounds like it's going to be a great place to pick up a bargan in the near future. I'd keep my eyes open for some great bank sales.
Gold will still move up a bit, but the time to buy it was 2-3 years ago. Good luck finding any real gold now.
Northern Virginia is a dead zone.
Once housing prices price out the move-up buyers all along the housing food chain, and then investors leave, that leaves in the market only those who absolutely must, at all costs, buy a house.
Think about it: how often is that the case? The vast majority of people seem to buy houses because they want to. They want to upgrade, they want closer to work, they want closer to family, etc. They "want" is the key. If what they want just becomes too expensive, they bite the bullet and stay put.
Basically, then, the housing market becomes illiquid to the extent that it is limited to only those buyers who MUST move.
Why not? It's survived the last 100 or so housing "busts."
I guess it is still golden.
true - if it's equity and not hot air.
It always does this .. just look back at history
I recall this happening in the mid 90's
and crash later but more serious
True, but that might not be until the post-Hillary patsy republican president.
it started in the early 90's and went through to mid 90's
One word...AFFORDABILITY.
As prices went up at a rapid pace, eventually it became cheaper to rent the property than buy it.
During the height of the recent boom I was listing and selling over 100 homes per year. When we noticed the vast majority of offers were seeking 100% loans, we knew the end was near.
Increasing the number of years from 30 to 40 on the amortization table served as a bandaid.
What is truly scary is that the real estate market crashed with fixed rates in the mid 6% range. We are concerned the monetary policies of the democratic congress will raise rates to 8% or more which will add to the misery index.
I've been a realtor for almost 30 years and the last boom was pure insanity.
Congress doesn't set monetary policy, Bernanke does and he only sets short term rates. If long term rates rise it will be primarily because Asian countries stop accumulating 10 year T-Bills.
Most likely builder confidence is more directly related to what the Federal Reserve is doing.
>Isn't over valuation also collecting higher property taxes? <
Absolutely. And, those of us who actually plan to live in and pay for our houses are getting hosed royally, thanks to the flippers.
In addition, blue staters who can't afford to live in their over-inflated areas are descending on us in droves, driving up our taxes.
I sold my townhouse in Northern Va for the same price I paid for it two years ago. I was able to do this and upgrade by getting the builder to give me over $150K in credits on the new construction. I had a choice of walking away from my $80K deposit or sell the townhouse at no profit. I had more equity in the new house so it was an easy choice to move ahead.
"Show me just what Mohammed brought that was new, and there you will find things only evil and inhuman, such as his command to spread by the sword the faith he preached." -Manuel II Paleologus
At least that has been the safer barometer to gauge where mortage rates are going since I've been in the business...since 1978.
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