Housing-Led Stock Market Correction
Posted by Frugal on September 21st, 2006
Have you seen the following chart? At a mathematical correlation of 0.79, it is scarily high. How much time do we still have before the bottom falls out? Or is it going to be a bullish 2007 with a great 4-year cycle election? With so many bulls arguing with 4-year election cycle, maybe this argument is a sign of desperation. Just some food for thought.
I think it is safe to say that there will be great uncertainty in 2007 due to the unfolding slowdown in the housing market. I would say, RUN at the first sign of a significant market correction. I am putting 2007 as another dangerous year like 2000 if not more dangerous due to the size of the current housing bubble. But I also think it is possible for Fed to work 24/7 already, blowing up commodity market, buying up treasury bonds & GSE bonds, to postpone the unfolding crisis to 2009. When the high-tech bubble bursted in 2000, Fed simply created another huge housing asset bubble to replace it. I cannot really imagine what would turn out eventually. The next wave of money flow is simply going to be bigger for sure.
Make sure you read the counter argument by Mark Hulbert for refuting the following chart. I agree with him completely.
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September 21st, 2006 at 7:02 am
I am not looking for the housing market to suddenly turn back up on a dime. Too much inventory to work through. Some of that invetory will drop off as sellers cancel their listings (or they expire) as they were unable to sell at prices that are no longer available. These are the ones who didn’t have to sell, didn’t have to move, didn’t have a bad mortgage to refinance, but were willing to sell at inflated prices and didn’t pull it off.
September 21st, 2006 at 10:12 pm
I agree there is too much inventory. Year round vacant properties ending 2nd qtr. 2006 is over 12 million. Assuming 2 per household as the average, you need an extra 24 million in population to absorb. How long will that take?
http://www.census.gov/hhes/www/housing/hvs/qtr206/q206tab4.html
September 22nd, 2006 at 2:37 am
JC, Thanks for your link. I think this is probably the beginning. Once the resetting of ARMs going into full force, inventory will be more.
September 26th, 2006 at 5:56 am
Interesting Articles for the Week 09/25…
Some good readings from the internet:
Have you seen Mad Money by Jim Cramer? An academic study showed that Cramer’s effect that makes recommended stocks jumped by 2% to 5%, and later reverted back to the original price, are because suckers boug…
September 26th, 2006 at 5:57 am
Larry, that’s certainly true about housing market. It will move very slowly.