Housing Prices Continue Slide, Bad Sign for Markets

The National Association of Realtors reported that sales of existing homes fell 5.3% in January, to an annual rate of 4.49 million units, from a 4.74 million rate in December. It was the weakest showing since July 1997. About 45% of total sales involve distressed property transactions, including foreclosures.

The median sales price tumbled to $170,300 from $199,800 a year earlier and $175,700 in December 2008.

I think house prices are the single most important metric to follow in determining when equity prices are likely to rebound or whether they continue to fall. This is more important than unit sales though both are tightly correlated. The 3% erosion from December is troubling and indicates that more downward pressure on equities is in the cards. Although I am bullish on certain stocks like Oracle (ORCL), Amazon (AMZN), Google (GOOG), and Apple (AAPL), I am negative on the prospects of the overall market because house prices continue to tumble.

Nouriel Roubini thinks house prices will continue to fall by about 15-20% in 2009.

My belief is that if we stabilize the housing market then capital market stability will follow. Until then I am extremely cautious and fearful as to what lies ahead although I believe one can make money with careful stock selection based on rigorous fundamental research.

Comments

[Mad Hedge F...:]

Here is a novel plan put forth by a hedge fund in Florida, Derivatives Bridge, LLC. Securities backing performing mortgages worth 100% are being sold for 20% because there is no market for these securities. Have the government buy these securities for 60%, rescuing the banks, and then sell them back to the original homeowner. The homeowner then is able to refinance his home, see his mortgage principal drop by 40%, restoring his net worth, and purchasing power. The cost to the taxpayer is zero. This is already possible in some countries like Denmark. If someone offered me a deal like this I’d take it in a heartbeat, even if I had to clean out the sofa cushions and raid my kids’ piggy banks. They say necessity is the mother of invention.

Feb 26 12:09 PM

[Lars39:]

House prices will begin to stabilize when median price is about 2.5 times median income.

Feb 26 12:14 PM

[nana1:]

This is very good , I am waiting for prices to go down much further.
Buy low sell high.
If you buy any real estate your rental income should pay for monthly mortgage payment, property taxes and hazard insurance. This is the way commercial properties are underwritten. Follow this rule and you will never be hurt as long as you will have income.
Why nobody was screaming that properties went up more than 300% in some areas. People created this buble. Loosers will take losses. People who can not afford house , will have an opportuity to buy.
People should take responsibilities for paying their mortgages. Banks have losses becuse they were stupid to give loans to such people. Do not blame anybody for this except borrowers.

Feb 26 03:01 PM