Part 1 – The Sky is Falling! The housing market is a topic many can relate to with many enjoying fruitful returns and/or savage losses. But where are we today and more important where are we heading?
In the coming period I will write several articles on this topic. Many analysts remain negative about US housing, and for good reason however, I see light at the end tunnel and hopefully it is not that infamous train coming to tear me up. Whilst being somewhat controversial I hope this, and subsequent pieces, will encourage you to draw some conclusions. Housing Attachment Housing is an emotional topic because it has had so many repercussions on the global economy. It remains a large asset on average household balance sheets with price moves having huge influence given the leverage involved. Most people in Europe and the US have felt, in one way or the other, the aftermath of the collapse; insolvency, loss on bank shares, loss of job, higher interest, decline on loan applications, so on and so forth ad nauseam. Furthermore, these emotional scars can cloud our judgement and force us to focus on the past thus ignoring the future. All the right reasons to be negative… We have seen banks and financial institutions collapse with the remaining banks having had a rough time with the S&P500 Bank index declining from 400 to 150, see chart 1. In tandem, homebuilders had a great time until the peak in 2005 but when the market disappeared beneath them the homebuilding index declined dramatically, see chart 1, from more than 1000 to less than 300 today. 
Direct home owners also felt the pinch with prices dropping steadily since June 2006, with those whose bought houses in 2003 on average not making a profit. Furthermore, buyers in the years 2004-2007 bear a loss in the range of 20-30% as shown in chart 2. Each line represents the price from the year indexed to 100 and the value is measured each month from offset. So the tables have turned, and instead of greasing the wheels of the economy the housing market has put a spanner in the works. 
The National Home Builders Association surveys the members each month and builders are still in the doldrums. The survey shows how builders expect the sale of single family homes to progress in the next 6 months and it is just a fraction above the assessment in early 2009 when the financial crisis was at its peak, see chart 3. Looking at the charts, it is easy to join the “doom and gloom” camp. 
I could find several other illustrations painting a similar picture however, I will save the time and prevent you from heading for the 7th story window. In the following part I will build on from this and provide some interesting angles as to why the coming years may present a relief from the present housing doldrums. Stay tuned…
Similar Posts:
- US Dollar is Safe…For Now
- Obama Proposes Initiative for Making Credit Terms Easier to Understand
- Price Bailey Private Client
- Quantitative easing goes global!
- Chart of the Day – 7/07/2010 USD/CHF
