New Home Activity

After looking at Used Home Activity, it's time to see how the New Home market is faring.

 New home sales continue to be depressed due to the intense competition from the used market.  The new home market has seen a decent summer averaging over 20,000 and comparing favorable to last years market.  Unfortunately, at this pace, new home sales for 2011 will be the lowest on record.

 Looking at sales from a longer term perspective, the last couple of years have been record lows.  It's looking like another year of about 300,000 sales.  Certainly a far cry from the bubbles top at 1,400,000 sales.

Fortunately, builders have refrained from starting many homes resulting in a months supply of around 6.

The bright spot in the new home market is the lack of inventory.  Eyeballing the above chart, it looks like there are about 60,000 finished homes on the market and about another 60,000 under construction.  If sales can maintain a 20,000/month clip it won't take too much to whittle away at that inventory.  That would set the stage for builders to focus on presales which are a much more profitable product for them, rather than specs.

Used Homes update

The monthly housing statistics have been recently released.

 Inventory levels continue to drop as they have for most of the year.  The months supply of homes on the market also continues to drop from the spike high seen mid 2010, however, it still remains well above the 6 months mark considered a more "normal" market.

 Sales have seen a small uptick recently and remain near the longer term average of 5mm sales/yr.

August saw pretty decent demand with 500,000 sales as the selling season winds down.  That was the best showing in 3 years.

According to the Case Shiller index prices have been basically flat since 2009.  All those who have been calling for a further 20% decrease in prices have sorely disappointed.  Certainly the continuing drop in mortgage rates have buffeted the fall in prices.

All in all, the market appears to be better than most would have you believe.  The supply of homes on the market has continued to decrease, demand for homes (sales) have held up reasonably well, prices have been stable (at least not freefalling) and mortgage rates have been dropping.  Should the unemployment rate continue to stay at the 9+% it has been at for the last two years I believe we are about 5% in price away from a buyable bottom.

Charts from Calculated Risk.

S&P 500

After the markets imploded in late July, early August the S&P 500 has been locked in a wide range between 1120 and 1220.  With the S&P currently trading around 1170, it's pretty much in the middle with no edge here.  Buying near 1120 and selling near 1220 is the strategy until there's a breakout one way or the other.

Equity Indices

The certainly wasn't impressed by the Feds lack of action yesterday.

As seen above in the Mid-Cap index, the market is poised to break out of it's bear flag.  The 50 day ema provided significant resistance to the upside and now all that's holding the market together is the bottom side of the flag.  The indicators are rolling over and heading south suggesting the flag will break down and out.  There is possible support at the year's low, 77.  The flag itself measures down to 73.  Unfortunately, if this turns out to be a measured move, the possible low is much further below.

The longer term outlook as seen in the Naz shows the market getting rejected at the neckline.  A follow thru to the downside measures to about 2100.  That's about 15% lower from here.

Seattle SFR

Time for a look at how the Single Family Residential market is faring in Seattle.  On the demand side:

Closings have been pretty stable since March averaging over 1500/month.  That's a stark contrast to the slow down in closings last year after the expiration of the tax credit.  At this point stable is good since that would put closings at the highest level since the 2007 meltdown.
On the Supply side:

Inventory also remains stable averaging near 8,000 units, the lowest amount in years.  That puts the month's supply a little over 5, which is pretty good.  With the selling season almost over seasonality should kick in resulting in lower inventory.  The typical pattern is for homeowners who failed to sell earlier to take their homes off the market.  The remaining inventory would be from motivated sellers.  Just eyeballin' it, inventory usually drops 30% into yearend.  That would take inventory available for sale down to 5,600 units at yearend.  It seems to me that the inventory would consist primarily of bank influenced properties (REO's/short sales) with owners (banks) attempting to shore up their 12/31 financial statements.
The balancing mechanism between supply and demand is price:

So far, the bounce in prices appears to be due to seasonality.  Since 2008, the selling season bounces have been; 2008 - lasted 1 month and increased 3%, 2009 - lasted 9 months with no price appreciation, 2010 - lasted 4 months and increased 3%, 2011 (ytd) has been 4 months with 3% appreciation.  So the increase this year, at this point, looks seasonally driven.  After the selling season appreciation in 2008 prices fell for 10 months resulting in a 17% decrease.  In 2009, prices fell for 5 months for a 5% decrease.  In 2010 prices fell for 8 months for a 9% decrease.  It seems the key to the market will be how prices behave during the slow months.

Taking a closer look at recent prices it is evident that the lower priced homes are taking the brunt of the decrease.  Anecdotal information suggests that well priced nice homes are being snatched up quickly, often resulting in multiple bid situations.  Over priced POSs are being passed up resulting in lower listing prices driving prices down.  As disappointed would be sellers take their homes off the market during the slow season I would expect the remaining motivated sellers to aggressively price their homes to move.  The result will be that prices will drop, with some amazing values appearing in the lower end of the market.  Investors and Flippers would be well advised to scour the market for these upcoming gems.

Charts from Seattle Bubble.

Long Term Investing in Equities

It doesn't really matter what your investment adviser has been telling you.  Continuing to make monthly contributions to you retirement account doesn't necessarily result in higher returns.  However, it does make your adviser more money since they are basically paid based upon how much "Assets Under Management" they have.  They get paid by the mutual funds they have clients money invested in.  When is the last time you got a call from your adviser suggesting you should be in cash?  Why would they...it takes money out of their pocket.  Take a look at this long term chart spanning from 1996 to today:

The Green dotted line approximates today's close.  That line extends back to 1999.  If you invested your funds in a market index fund back in 1999 and added to the account each month (dollar cost averaging)  you would be break even.  12 years of investing, and, nothing to show for it.  On the other hand, if you sold your index funds near the prices identified by the MACD (shown below price, ie red circles), and, bought near the green circles, you would have made significant progress towards increasing your wealth.  The message is that blindly throwing money into the market isn't the best way to increase your wealth.

Currently, the monthly MACD hasn't gone negative and the 200 month ema hasn't been broken.  Should both of those turn negative 700 is the next target.  Let's hope that doesn't happen.

Naz - Hit with an Ugly Stick

Poor economic news walloped the market at the end of the week.

The market showed promise early in the week backtesting the neckline at 2600.  Bad ISM & Employment numbers triggered a sharp selloff.  Bear market rules for the RSI are in effect with 50 acting as a roof.

The poor showing at week's end left the market with an ugly looking black candlestick, with a long tail off the 2600 neckline identified above.  The indicators are in oversold territory but show no signs of reversing.  The Naz has some support at 2340.  A break of 2340 measures down to 2100.

S&P 500

The S and P broke north out of its base.

The indicators have had a chance to unwind.  1200 looks like a good support to the downside.

On the daily chart, it can be seen that the index is entering a congestion area highlighted by the orange circle.  That is where the 50/200 day ema's are lurking (and pointing down) with the neckline just above.  1260 will be tough resistance.  If the indicators can unwind from being oversold a little more, 1255 would be a good spot to go short, with stops at 1265.  With a couple of big economic reports due this week (ISM and Payroll) it should make for an interesting market.

The weekly chart shows the resistance levels noted on the daily chart.  The best thing about the weekly chart is that the indicators are trying to curl north.  It make take another run down to get the indicators flushed out.  In the meantime, the oversold indicators make another "crash" look unlikely.  Maybe more downside, but not a "crash."