Still No Housing Bottom: Economic Impact Yet to Be Fully Felt

by: Barry Ritholtz

I've come across quite a few fascinating Housing charts over the past week. Taken together, they tell a tale of sector that has yet to see a bottom. And I suspect the economic impact has yet to be fully felt:

Housing is not getting better anytime soon: This is an survey discussion asking about various aspects Builder's Businesses. Its bad enough that the Index [HMI] in May dropped 3 points to 30. It was bad across the board -- but the real ugliness was in traffic of potential buyers -- that's a leading indicator to Builders as to how much product they will be moving -- It dropped to 23. In the heart of the selling season (survey data was done in May).

NAHB Housing Index
hmi_april
Chart courtesy of NAHB

Starts and New Permits are still dropping rapidly. Given all the excess inventory, this is actually the silver lining in the slowdown.

Housing Starts and Permits
starts_permits
Chart courtesy of Northern Trust

Marketbeat points out that new Housing construction has now slipped to around 1.5 million units -- that of a normal, growing economy. Expect housing starts generally falls to about 800k to 1 million units before a rebound is seen.

IYR Top?

The DJ Real Estate Index is a potential 20% loser from here, based on the Head & Shoulder topping pattern:

real_estate_hs
Chart courtesy of Mike Panzner

What does this mean to the economy? The clear implication is that consumer spending will remain pressured, and retail stocks -- excepting the Luxe goods -- will continue to have a difficult environment.

NAHB Housing Index and Consumer Spending
nahb_coincindent_spending