Bear View III - Blame it on Housing
Jon Markman at MSN on why the market is tanking.
We agree that a slowing housing market, rising rates & energy costs, will turnoff the housing ATM spigot and could cause a major global slowdown.
Key Quotes: Stocks have been in a tailspin for a month, and the news is only going to get worse. Looking for a culprit? Start with the housing market.
Amid slack demand, home prices are already declining or flat everywhere, with Midwest and South regional declines the worst.
A collapse in home prices works its way deep into the economy. For one thing, declining sales tend to forecast declining consumer spending, with a lag of about nine months, according to ISI Group analysts.
The data suggest consumer spending is on track to decline by 1.6% year-over-year. This is important because housing and consumer spending combine for 75% of total U.S. economic output.
Home construction has also been a huge part -- about 20% -- of employment growth over the past two years. If the housing decline numbers continue on their current path, overall employment numbers will continue to drop, as they did last month.
My economic and investment models continue to forecast the potential for one last hurrah in stock prices this month before a precipitous decline in July through October. That’s potential, not a guarantee.
When people work and earn less, they buy less. If that sounds bad, you’re right. In the past couple of years, people have made up for the shortfall by taking money out of their home values via a process that economists call “mortgage equity withdrawals.”
(You might know it better as a home equity line of credit.) But that phenomenon is reversing now as well.
Markman's 20% construction estimate is spot on. However the problem is even worse as 45% of all new jobs over the last four years were housing industry related.
A housing slowdown in the US could result in an Asian banking contagion. More on this in Part IV.
We agree that a slowing housing market, rising rates & energy costs, will turnoff the housing ATM spigot and could cause a major global slowdown.
Key Quotes: Stocks have been in a tailspin for a month, and the news is only going to get worse. Looking for a culprit? Start with the housing market.
Amid slack demand, home prices are already declining or flat everywhere, with Midwest and South regional declines the worst.
A collapse in home prices works its way deep into the economy. For one thing, declining sales tend to forecast declining consumer spending, with a lag of about nine months, according to ISI Group analysts.
The data suggest consumer spending is on track to decline by 1.6% year-over-year. This is important because housing and consumer spending combine for 75% of total U.S. economic output.
Home construction has also been a huge part -- about 20% -- of employment growth over the past two years. If the housing decline numbers continue on their current path, overall employment numbers will continue to drop, as they did last month.
My economic and investment models continue to forecast the potential for one last hurrah in stock prices this month before a precipitous decline in July through October. That’s potential, not a guarantee.
When people work and earn less, they buy less. If that sounds bad, you’re right. In the past couple of years, people have made up for the shortfall by taking money out of their home values via a process that economists call “mortgage equity withdrawals.”
(You might know it better as a home equity line of credit.) But that phenomenon is reversing now as well.
Markman's 20% construction estimate is spot on. However the problem is even worse as 45% of all new jobs over the last four years were housing industry related.
A housing slowdown in the US could result in an Asian banking contagion. More on this in Part IV.
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