Friday, July 27, 2007

Housing and the stock market

Has the market discounted the worst of the housing slump? Look at the daily chart of the nation's largest home builder, Hovnanian. The chart is a textbook picture of bear market distribution, as support level after support level is torn apart.

From its high of 73.40 in July of 2005, HOV hit a low of 13.02 yesterday, for a total loss of 82%. The great bear market of 1929-32 took the Dow down for a loss of 89%, so the losses in the two are comparable. And I ask myself "What is the meaning of the 82% loss in the nation's largest homebuilder?" My answer -- housing is in for a very hard time ahead. The worst is yet to come. And the bear market in housing is going to take time, probably a lot of time.

Up to this week, the housing slump has been taken with a grain of salt. Investors told themselves, "So what about housing? If housing's really going to be a problem, we'd see in a shaky stock market. But the stock market's been booming, so what's the big deal!"

Of course, that's now changed, and the stock market is liquidating. Under these conditions, people are going to take a much more sober view of the continuing housing slump.


Anonymous Anonymous said...

Of course none of us know for sure when this thing will come crashing down, but I find it hard to believe that the ridiculous number of foreclosures here aren't going to mean SERIOUS price declines when they work their way through the system.

Just looking at Dataquick's numbers, it's just a matter of time. Of course the poor get hit first and hardest. But, it's folly to think this stuff is "contained." While Contra Costa, Alameda and Solano county get slammed, San Mateo, Santa Clara and Marin better look over their shoulder.

NODs are at levels not seen since the last downturn, actual trustee sales are at record highs and we haven't even hit the rate resets that are coming in October. Even after October, it takes 6-12 months for the pain to show up in sales prices.

Can't even imagine if Bay Area consumption and/or employment go down.

Is that the sound of "wealth" I hear flushing down the toilet?

3:43 PM  
Anonymous Anonymous said...

The last point is critical...namely we see the record defaults yet employment remains extremely strong and the economy robust. What happens if a) the price declines hinder consumer spending or b) there is a shock that causes a sudden economic downturn? How much worse could the forclosures get? And Marin is definitely not immune. I personally think many people, even in the $$$ areas, have been living off of their Helloc loans and not real income produced by a career or business they own. When Helloc loans stop (already have IMHO) watch out.

7:27 AM  

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