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The Housing slump

Written by A Forex View From Afar on Friday, May 23, 2008

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Another U.S. housing release, another failed hope that something could improve. Existing home sales showed that the housing slump is far from at a bottom, although the release number came in better than analyst predictions.

Housing inventories have reached a record 11.2 months, and there are now 4.5 million houses for sale, that is up one 33% since last year, while prices have fallen even further, now a long way from the 2005-2006 tops.

We could say 'nothing is new' in the housing market, that it is hard to see anybody waiting for a rebound in home sales at this point in time.

If we add that 3 million homes are said to join the Inventory over the next two years through foreclosure, the Housing Market recovery looks far off. Not to mention that many expect prices to drop even further from current levels, and that will increase Inventory as optimistic home-owners wait for what they see as Fair Value. Right now, any offer may be the best offer most will see for a while.

By now the drill should be known- no Dollar recovery until the housing market starts reducing the Inventory numbers, and until they reach somewhere around 6 months, as was the norm.

It will be interesting to see how consumers react in this period of contraction, since housing wealth was said to be the reason behind increased consumer spending, and also how the negative $63B U.S. Current Account reacts in response. The $600 Stimulus Checks are arriving this week, at a huge expense to the government checking account.

The weaker US$ could be a good opportunity for US exporters to reduce the Trade Balance, and that may be key to sustaining longer-term growth going into 2009/10.

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