Best of the Week
Most Popular
1. Gold Final Warning: Here Are the Stunning Implications of Plunging Gold Price - P_Radomski_CFA
2.Fed Balance Sheet QE4EVER - Stock Market Trend Forecast Analysis - Nadeem_Walayat
3.UK House Prices, Immigration, and Population Growth Mega Trend Forecast - Part1 - Nadeem_Walayat
4.Gold and Silver Precious Metals Pot Pourri - Rambus_Chartology
5.The Exponential Stocks Bull Market - Nadeem_Walayat
6.Yield Curve Inversion and the Stock Market 2019 - Nadeem_Walayat
7.America's 30 Blocks of Holes - James_Quinn
8.US Presidential Cycle and Stock Market Trend 2019 - Nadeem_Walayat
9.Dear Stocks Bull Market: Happy 10 Year Anniversary! - Troy_Bombardia
10.Britain's Demographic Time Bomb Has Gone Off! - Nadeem_Walayat
Last 7 days
Stock Market Crash Edition - 26th Mar 19
Handy Ways to Boost Your Home Income - 26th Mar 19
US Treasury Bond Yield Inversion and Political Fed Cycles - 26th Mar 19
Golan Heights Oil all about the Shekels - 26th Mar 19
Falling Yields a Catalyst for The Gold Catalyst - 26th Mar 19
Can We Lock Up Rachel Maddow Now? - 25th Mar 19
Real US National Debt Might Be $230 Trillion - 25th Mar 19
Friday's Stock Market Sell-Off - New Downtrend or Just Correction? - 25th Mar 19
20 Days Left to Find Buying Opportunities In Gold - 25th Mar 19
Will the Historic Imbalance in Gold Stocks to Gold Price Resolve ? - 25th Mar 19
EasySMX Wireless Games Controllers Review - 25th Mar 19
Stock Market Short-term Top - 25th Mar 19
UK Population Growth - Latest ONS Immigration Statistics and Consequences - 24th Mar 19
The Fed Follows Trump's Tweets, And Does The Right Thing - 24th Mar 19
Yield Curves, 2yr Yield, SPX Stocks and a Crack Up Boom? - 24th Mar 19
Risk/Reward in Silver Favors Buying Now, Not Waiting for Big Moves - 23rd Mar 19
Similarities Between Stock Market Today and Previous Bull Market Tops - 23rd Mar 19
Stock Market DOW Seasonal Trend Analysis - 23rd Mar 19
US Dollar Breakdown on Fed Was Much Worse Than It Looks - 23rd Mar 19
Gold Mid-Tier GDXJ Stocks Fundamentals - 23rd Mar 19
Which Currency Pairs Stand to Benefit from Prevailing Risk Aversion? - 23rd Mar 19
If You Get These 3 Things Right, You’ll Never Have to Worry About Money - 22nd Mar 19
March 2019 Cryptocurrency Technical Analysis - 22nd Mar 19
Turkey Tourist Fakes Market Bargains Haggling Top Tips - 22nd Mar 19
Next Recession: Finding A 48% Yield Amid The Ruins - 22nd Mar 19
Your Future Stock Returns Might Unpleasantly Surprise You - 22nd Mar 19
Fed Acknowledges “Recession Risks”. Run for the Hills! - 22nd Mar 19
Will Bridging Loans Grow in Demand and Usage in 2019? - 22nd Mar 19
Does Fed Know Something Gold Investors Do Not Know? - 21st Mar 19
Gold …Some Confirmations to Watch For - 21st Mar 19
UKIP No Longer About BrExit, Becomes BNP 2.0, Muslim Hate Party - 21st Mar 19
A Message to the Gold Bulls: Relying on the CoT Gives You A False Sense of Security - 20th Mar 19
The Secret to Funding a Green New Deal - 20th Mar 19
Vietnam, Part I: Colonialism and National Liberation - 20th Mar 19
Will the Fed Cut its Interest Rate Forecast, Pushing Gold Higher? - 20th Mar 19
Dow Jones Stock Market Topping Pattern - 20th Mar 19
Gold Stocks Outperform Gold but Not Stocks - 20th Mar 19
Here’s What You’re Not Hearing About the US - China Trade War - 20th Mar 19
US Overdosing on Debt - 19th Mar 19
Looking at the Economic Winter Season Ahead - 19th Mar 19
Will the Stock Market Crash Like 1937? - 19th Mar 19
Stock Market VIX Volaility Analysis - 19th Mar 19
FREE Access to Stock and Finanacial Markets Trading Analysis Worth $1229! - 19th Mar 19
US Stock Markets Price Anomaly Setup Continues - 19th Mar 19

Market Oracle FREE Newsletter

Stock Market Trend Forecast March to September 2019

REITS signaling a bottom in the US Housing / Real Estate Market

Housing-Market / UK Housing Feb 09, 2007 - 12:07 AM GMT

By: Clif_Droke

Housing-Market

One of the inescapable conclusions one comes to after a long-term study of history is that current events and financial markets is very little happens without a pre-ordained reason. This statement is especially true when applied to the financial markets. With literally trillions of dollars in money and credit floating around the world, there is simply too much at stake to allow the natural forces of chance and coincidence to interfere with the plans and dealings of the world's financial controllers.

REITS signaling a bottom in the US Housing / Real Estate Market


To Franklin Delano Roosevelt is commonly attributed the following statement: “In politics, if it happens, you can bet it was planned that way.” Viewed from this perspective, it becomes difficult to reconcile the financial panics, manias and crashes of the past with mere chance. Every major event in financial history can ultimately be tied to some plan (or reticular series of plans) of the “wheeler-dealers.” Another famous statesman once said that if you're looking for the reasons why anything happens in the realm of politics and economics look at the results and see who the winners were and then you'll have your answer.

So if we proceed under the assumption that nearly every major financial event has been pre-ordained and carefully thought in advance for the purpose of benefiting the elite few, it's only natural to ask, “What was the purpose of the real estate softness of 2005-2006?” The beginnings of the answer to this question can be found in a recent report on the U.S. real estate market.

Editor Robert Campbell in the January issue of his Campbell Real Estate Timing Letter (www.SanDiegoRealEstateReport.com) writes, “In the last two months, at least eight sub-prime mortgage lenders – lenders who make loans to ‘challenged' borrowers with credit problems and income issues – have shut their doors and/or gone bankrupt. Why? Because hundreds and hundreds of thousands of these sub-prime borrowers can't pay their mortgages, and they are inflicting severe losses on the lenders who made these types of loans.”

Could it be that one reason for the real estate slowdown was to push the smaller mortgage lenders out of business and foster consolidation among the survivors?

Another point worth mentioning is that whenever “thousands of sub-prime borrowers can't pay their mortgages” then it's time for the Federal Reserve to start priming the pump and upping the money supply…which is exactly what they've been doing since these statistics were first released. The mortgage market simply cannot be allowed to collapse at this point in time and it won't.

We keep hearing of excess inventory with “too many houses for sale and not enough buyers.” One analyst from a prominent brokerage firm remarked that this excess supply “may require a long time before it's absorbed.” Another analyst says it will probably take years to clear out the inventory of unsold houses on the market.

Others point to the rise in interest rates as being a factor that is expected to discourage buyers from coming forward. But in a healthy demand for housing, interest rates of no object unless they climb well into the double digits. Current interest rates are low by long-term standards and aren't even a factor worth considering in today's housing equation.

The real law of supply and demand in real estate says that the demand for real estate is latent and therefore theoretically insatiable. It further states that there can be no such thing as too much supply. Every house built will eventually be “absorbed” by a buyer and the current “oversupply” of houses in the U.S. could have even more units added to it and it still would find buyers eventually. The only thing to prevent the buyers from coming forward is a lack of availability of money and credit.

This leads to the fundamental principle governing the real estate market: demand is driven ultimately by money supply. When money supply and credit is loose and liquid, real estate and housing sales will be brisk. This isn't to say that bubbles can't exist and that prices don't sometimes exceed the boundaries of rationality. Indeed, sometimes housing prices and speculation exceeds the outer limits of what the market can bear and a reversal becomes inevitable. But this is not the same as a housing crash. Housing crashes can only be created by one thing: a severe diminution of liquidity. Only when bank credit and money supply dry up is there ever any real danger of real estate prices collapsing and remaining at depressed levels.

John Schoen, an economic commentator for MSNBC, wrote an article last Friday emphasizing the weaker-than-expected job growth in the U.S. despite the latest upbeat numbers in other areas of the economy. He noted that the latest figures show just 111,000 new jobs added for the month of January, which he and other economists interpret as a sign that the economy may be slowing. The renewed emphasis on lagging middle class incomes was one focus of the President's most recent speech.

The article also emphasized the housing market doldrums and Schoen quoted a report by outplacement firm Gray & Christmas, which stated: “…many experts feel that the housing market has not hit bottom, so manufacturers of home-building materials, and the real estate and construction sectors could see more job cutting this year.”

Schoen ended his article by quoting a statement by Richard Iley, a senior economist at BNP Paribas which, who said : “You take those two factors out, underlying the fundamentals, the economy is pretty poor,” he said. “The housing correction has a long way to run and there will be increasing spillovers.”

As you know, it's been my view repeated over and over to you since late last summer that the housing downturn would find bottom probably sometime in the first or second quarter of 2007 and I still hold to that view. The leading indicators, which almost no one looks at these days, are screaming “improvement is coming!” for the physical real estate sector, not only in the way the REITs are consistently making all-time highs but also in the steady improvement among the homebuilders.

The REITs continue their bullish performance as we begin a new month with the Dow Jones REIT Index (DJR) closing on Feb. 7, at an all-time high. This has been expected as our REITMO series of internal indicators have been the most bullish of all our internal momentum indicators recently. Just take a look at the upward turn the 30-day, 60-day and 90-day internal momentum of the real estate equities have taken recently as shown in the chart below.

his has been expected as our REITMO series of internal indicators have been the most bullish of all our internal momentum indicators recently. Just take a look at the upward turn the 30-day, 60-day and 90-day internal momentum of the real estate equities have taken recently as shown in the chart below

An even more important stock market sector for gauging the strength of the housing market, however, is the homebuilders. The Philly Housing Sector Index (HGX) has shown remarkable improvement since hitting bottom last summer. HGX topped out in August 2005 at about the 290 level and dove sharply to the 230 level by November of that year. After a brief recovery rally back up to 290 in January 2006 the HGX fell again even more sharply from April through July of last year and finally hit bottom at about 190. Since then the HGX has recovered steadily and has climbed all the way back up to a 6-month high of 255 last week. This represents a greater than 50% recovery from the housing sector bear market of 2005-2006.

The Next Great Bubble Boom: How to Profit from the Greatest Boom in History: 2006-2010
$11 (29% discount)in History: 2006-2010

 

The message of the homebuilder stocks is that the physical housing sector will most likely continue to show improvement from last year's weakness as we've been preaching the past few months. That anticipated recovery has appeared already in the recent housing starts as well as in new home sales. Donald Rowe of the Wall Street Digest noted on Feb. 2, “Yesterday, pending home sales were up 4.9 percent, indicating that future existing home sales will be positive for all four regions of the country.”

That anticipated recovery has appeared already in the recent housing starts as well as in new home sales.

Leading indicator stocks like Home Depot (HD), which is also a Dow 30 component, has also performed well and looks to have higher to go in its 6-month-old recovery. Also, the Dow Jones U.S. Building Materials and Fixtures Index is in a remarkable bull market since bottoming last July and has now completely retraced its bear market from last year, recently making a 52-week high. The turnaround in the Building Materials index has been among the most impressive turnarounds among industry groups in the past year.

The turnaround in the Building Materials index has been among the most impressive turnarounds among industry groups in the past year

So with the extraordinarily impressive charts in so many stock market groups related to real estate (residential as well as commercial) why are the experts still crying “bear!” on real estate? Why did Gray & Christmas predict more job cutting in firms related to construction? We know from history that big increases in job cutting and layoffs almost always occur as the bottom is being put in following a bear market. We also know from experience that the stock indices for major industry groups tend to give leading signals about 6-9 months for a bottom and turnaround in the physical sectors. Could the 6-month turnaround in the REITs, homebuilders and building materials groups be warning of an imminent bottom and eventual turnaround in the related physical real estate sectors? If history is any guide then the answer should be “yes.”

An even more immediate indication of the strength in the REITs and homebuilders is that the overall stock market is in an exceptionally bullish condition and should continue its strong performance in the weeks and months ahead. The REITs are leading indicators and strength in this sector nearly always precedes strength in the broad market. With the Fed pumping liquidity back into the system after the dry spell of 2004-2006, the stock market should continue to respond in positive fashion in 2007.

By Clif Droke
www.clifdroke.com

Clif Droke is editor of the 3-times weekly Momentum Strategies Report which covers U.S. equities and forecasts individual stocks, short- and intermediate-term, using unique proprietary analytical methods and securities lending analysis.  He is also the author of numerous books, including most recently "Turnaround Trading & Investing."  For more information visit www.clifdroke.com


© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules