Does Anyone Care About Housing?
Does anyone care about the housing market anymore? This morning's new housing starts number for April was awful; 11% lower than March and well below the expected number. The housing market is truly in the dumps.
The U.S. homebuilder's sentiment index has a mid-point of 50. Any reading below 50 is considered poor. For April, the index registered 16 -- for the second month in a row.
The chief market economist at TD Securities, Eric Green, summed it up perfectly in a Bloomberg article: “Job growth is essential to household formation and to keep home prices from falling further...I don’t see home sales doing much of anything” for the foreseeable future.
And it's not just new home construction. There are 3.5 million houses on the market. Another 1.8 million are either delinquent or in foreclosure. Economists continue to push back their estimates for when the housing market will show signs of recovery. Maybe in 2012...
*****While homebuilding stocks are in the dumps, the stock market in general has chugged along as if there were no problems with the housing market -- or unemployment. We have two things to thank for that: inflation, the U.S. dollar and the Fed. Ok that's three things. But they all relate...
Low inflation allowed the Fed to pursue stimulus policies (QE2) that dropped the U.S. dollar and raised stock prices.
Predictably, the falling dollar was reciprocated in rising commodity prices. Acknowledging the rising inflationary pressure from commodity prices, but at the same time calling commodity inflation transitory the Fed said it would end QE2 and not immediately start QE3.
Commodity prices reversed almost immediately following the Fed's statement. Transitory indeed...
*****What commodity inflation we've experienced this year is a result of a weaker dollar. Inflation created by demand was non-existent. And that's because unemployment is high, and housing prices are still falling.
When the housing market turns, we will see the true nature of inflation. But until that happens, inflation will likely be "transitory", and the Fed will have the option to start another round of purchases.
*****For a little more color and what's going on with currencies, and how that's affecting stock and commodity prices, here's TradeMaster Daily Stock Alerts' Jason Cimpl:
To the bears credit; they are defending 1350 resistance on the S&P 500 well. Additionally, they have the chance to take out their first support zone (1332) in over two months today. A break below support (1332) will result in a move back down to 1301. But more important than the 2.6% decline, the success of breaking a support zone may invigorate sellers and the market may actually develop a strong short-term trend - something it has lacked for nearly this entire year.
The only chance the bulls have this week to defend support and take the market to 1377, my break out target, is for commodities to rally. And the only chance that commodities rally is if the euro rallies. So the bulls are highly dependant on the euro to eek out a gain this week.
The euro trades at a must hold support level $1.40. At $1.415 the currency has a little more room left to the downside, but its back is against the wall. Crude oil, which has a life force of its own at times, is also at a must hold price. Any decline below $96.50 and $89 here we come.
Jason has just released his highly anticipated Top Ten Trades for May. (Stocks from the April report posted 13%, 13.5%, and 26% one-month gains.)
Now, you can get the FREE Top Ten Trades for May report, plus get Jason's daily letter, TradeMaster Market Forecast, and get Jason's incredibly accurate stock market analysis every day -- just click this link and leave a valid a email address.
