US housing and the stock market
In the past ten years (1996-2006), the NAHB homebuilders index tends to lead the performance of the S&P 500 by 12 months. The index goes from is based on a survey of homebuilding companies views on current sales, the outlook for the next 6 months, and the current level of prospective buyer traffic. This month was the 7th monthly drop in a row, and is a 15-year low.
In the period from 1985 to 1996, there is no correlation between the housing and stock market, so this could optimistically be viewed as a temporary coincidence. On the other hand, asset class correlations have been going up for a while. Draw your own conclusions, but real estate prices, home builders, and mortgage lenders are clearly having a difficult time recently.
John Mauldin has pulled together some observations on the housing market in his newsletter this week, leading with the graph above from David Rosenberg at Merrill Lynch. (Free e-mail registration required, but worthwhile reading.)
Here in the Bay Area, real estate prices are chronically high, ranging from “insanely high” to just “overpriced”. Here’s the pessimistic view. At least you can live in your overpriced house if you have enough cash to support it. I know of at least one dot-com zillionaire who lucked out by overpaying for his house in cash before the crash. The house went from something like $6M to $4M, but his stock went from something like $100M to $2M.
More on the housing market from Barry Ritholtz.
Tags: stock, housing, economy, investing, bayarea
