DOW FALLS 100 AND SPAIN PROTESTS AUSTERITY

TBI ^ | 9-25-2012 | Sam Ro

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DOW FALLS 100 AND SPAIN PROTESTS AUSTERITY: Here's What You Need To Know

Sam Ro
September 25, 2012

AP Images

Market volatility picked up amid some mixed signals from the economy.

First the scoreboard:

Dow: 13,458, -100.2, -0.7%
S&P 500: 1,441, -15.2, -1.0%
NASDAQ: 3,117, -43.1, -1.3%

And now the top stories:

* After the U.S. markets closed yesterday, global economic bellwether Caterpillar shook the earth by cutting its earnings guidance for 2015. "Our goal hasn't changed but the economy has," said management.

* However, more evidence suggests the U.S. housing market is recovering. According to S&P Case-Shiller, home prices rose 1.2% year-over-year in July. This was much higher than the 1.05% increase economists were looking for.

* With bullish housing data mounting, the debate seems to be less about whether the housing market has bottomed. Rather, it seems to be whether it will contribute materially to economic growth. The bulls argue that it offers the shot in the arm needed to boost consumer confidence and spending. The bears think that housing just doesn't contribute enough to offset all of the other global economic concerns.

* In a separate report, the Conference Board said consumer confidence surged to 70.3 this month from 61.3 a month ago. This was much higher than the 63.1 expected by economists.

* Markets turned negative just before 1PM as images from the Spanish austerity protests started crossing. And the selling just intensified into the close.

(snip)

[Wyatt's Torch]

On the flip side, Ivy Zelman, the best housing analyst on Wall Street (Forbes listed her as the most accurate analyst for any sector) called the bottom earlier this year and is calling for 965,000 starts next year. Inventory (including shadow inventory, new home and existing) has been declining for months and some are at historic lows. Builders are running out of existing finished lots in A and B locations are are purchasing raw land to develop. Demographics are driving the demand as household formation rebounded to 1.1 million last year after being down more than 50% of the 50 year average. Census estimates of 15-17 million new households between 2010 and 2020. Based on 600k starts for 2010, 650k starts for 2011 and 750k starts this year we are going to need 1.6 million new homes (including multi family) to meet that 15 million minimum. BTW the 60 year average for housing starts is 1.5 million so its right in line with historical demographic trends.

[Wyatt's Torch]

The interesting thing this that average rents exceed average mortgage payments in the same areas. The Echo Boom will be the prime demographic driver of the economy after you “Baby Boomers croak...” ;-)

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