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Housing in search for a bottom

Written by A Forex View From Afar on Wednesday, January 09, 2008

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Housing in search for a bottom? Not in our opinion

Full Details and Analysis. Please add your Comments.
Today we had the Pending Home Sale release in the US and it came much worse then markets expectations. The only good news is the last release was revised up, from 0.6% to 3.6%.

The pending home sales are in a clear downtrend, from the top reached in 2005. During that year, the index closed at 124.4, now being around the 87 area. This is a 40% drop in 2 years, which is huge for the real estate industry, known for its steady (and secure) gains. In 2001, when the index was created, it was 100. Remember 2001, it was a recession year? Well now we are under that level.
Just look at that cover attached, it could be easy put in thelfb.com "Humor area".



The real estate industry is generally associated with high prices and allots of expenses that come with a new house, like furniture, electric appliances and of course a new loan.
Buying a new house is the biggest expense in the life of a consumer and this way its given so much importance.

Today, the Boston Fed Rosengren made it clear that the housing market still didn't find a bottom and either they [FOMC] can't predict its consequences.

"The sharp declines experienced in many regions of the country have occurred despite low real interest rates and, until December, an unemployment rate below 5 percent. This highlights a risk to the housing sector going forward: Since prices have declined substantially even in a relatively benign economic environment, one cannot discount the possibility that they could fall more rapidly should economic performance not remain strong in 2008."

"Let me be clear -- this is an unusual economic situation and we cannot predict exactly what is going to happen"

This looks like another series of rate cuts are coming.

To make matters even worse, CountyWide Financial, the nations largest mortgage lender, spoke of bankruptcy. We had this news covered in our Alerts and Broadcast yesterday, and it seems that it paid off, Dow Jones closing negative in the last 2 hours.

If someone asks me about the housing problems, I'll say that housing sector is in search of a bottom, but that bottom is far down, not reachable any time soon.

"Equity Market and Carry Trading Negative"

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