A Forex View From Afar

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Housing Market Still Far From Stabile

Written by A Forex View From Afar on Friday, May 29, 2009

Even though most investors are confident about the global economy recovering in the second part of the year, the equity markets cannot find the strength to break above the highs set at the beginning of May.

The major equity indexes saw strong buying orders during March and April, and some more during the beginning of May. However, the financial markets ran out of steam pretty quick, as a number of releases failed to hit the market’s expectations. Some of those releases are coming from the housing market, were the contraction seems to be going forward uninterrupted.

Today, a report showed that new home sales rose 0.3% in April, to 352,000. Even if most market participants interpreted the releases as signs that the housing market is stabilizing, things are not too rosy.

Speaking from a statistical point of view, a 0.3% increase is close to nothing. Not to mention that such a small variation can simply be ignored, because even the smallest slip would produce a bigger fluctuation. In April of this year, new home sales were just a third of what they used to be back in 2004 and 2005, at the height of the market. “This clearly denotes the magnitude of the downfall, and a gain of 0.3% month-over-month, is just a plain number. Nobody expects the housing market to return to its 2005 activity, but the whole industry cannot survive with only pieces of what it once had been,” TheLFB-Forex.com Trade Team added.

Another problem with the housing market is the huge number of inventories. The latest release points out that inventories are holding at 12 month highs, but TheLFB-Forex.com Trade Team considers that this number does not reflect the real market-situation. In such a poor housing market, one question rises, which owner would sell its house at the current prices? Not too many. A quick conclusion would be that one of the initial causes of the credit crises, the housing market is still far away from a sustainable recovery.

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