Housing Shaky

It has been a month since my last report on the housing market. Yesterday morning I gave an update of the housing end of things via my economic model - one that was not too strong a support, via the numbers, for the housing market with production for new homes remaining weak and the supporting factors to buy a home, earnings and job growth, remaining stalled out and losing momentum for the most part. Falling momentum does not remove the problem that plagues the real estate market as a whole; too much supply and not enough demand. The Fed can go ahead and print all day but if nobody wants the money, then that money is useless.

As the chart here shows, housing, from the stock market perspective is equally weak. If you notice the housing indexes bounced pretty good from the first QE in the spring of 2009 (along with the rest of the markets). Since the bounce though and then the crash following the markets disintegration last spring, housing has not recovered. In terms of the economic model, I mentioned that the flash crash and the high volatility in the marketplace was not helpful to the economy as a whole and from looking at the charts here, the evidence is very clear. The shock that the flash crash brought us has also tipped downward the relative performance of the HGX (Philly Housing Index) versus the S&P. The last time this occurred so violently (and not shown on the chart) was in 2006 right before the housing market and the economy went into a dive. However, back in 2006, the lower chart was also falling lower in a very steep fashion. This time around, the HGX is basically stalled out. This counters the first chart in essentially saying that the rest of the economy is growing but the housing market is not.

So the story for housing basically remains this; stability with some warning signs. If the HGX starts to break to new lows, then the Fed will probably have no choice but to dome some more things to prop up housing. Conversely, perhaps the housing market needs to just crash and then we can work off the excess supply that has overwhelmed demand for 4 years now....and counting.

Related articles

• Housing market 'subdued' (independent.co.uk)
• Where Will The Housing Market Impact Congressional Elections? (CHART) (huffingtonpost.com)
• Underwater mortgages and US housing (ftalphaville.ft.com)
• Goldilocks in the Housing Market (fool.com)
• What next for house prices? (telegraph.co.uk)