aarc

Housing Starts at Underappreciated New Low

New home construction and Dow Jones 1910 to 1932 charts have the same patterns:

- Started with a slow gradual run down;

- Followed by a hectic rally;

- Finalized by a punitive meltdown.

Price structures are almost the same just by eyeballing the charts. Differences will appear once detailed technical analysis is done.

I don't have extensive chart data on the gradual sell-off before the rally for Dow Jones prior to 1920. But the rally lasted from 1921 to 1929, almost 10 years; ditto with NHConstruction ~ 10 years. Punitive sell-off for Dow Jones lasted 3 years from 1929 to 1932 breaking down well below the last low of 1921; ditto with NHC with a little more than 3 years and had broken down at lower low already. Way down. Of course, NHC is not a sell-off but rather a boycott from new home buyers. But the same results = market meltdown of unprecended scale at an extremely short period of time.

Hard to imagine Dow Jones would have survived in 1932. JP Morgan and his peers finally gave the legendary trader Livingston an ultimatum to cover his shorts otherwise they would have closed down the stock market for good. Livingstons had the followings of the traders; and traders were shorting Dow Jones to death while the investors were scared to death not knowing what to do.

Livingston did cover and the Dow Jones was able to survive. Not only survive from $42/share but prospered to $14,200/share into the year 2007.

Technical charts has a history of repeating itself not all the time but most of the time since the chart only records mankind's different types of endeavors throught the years and thus charts will keep recording future endeavors of market participants in their respective fields. Times change at a much faster rate than basic human survival instinct. And so history repeats itself or rather rhymns with the past with minor or major variations. So will the charts.

This too shall past. Housing mania is not like a Tulip mania or the dot.com bubble.

People can live without tulips and they can do without all those dot.coms. A few dot.com companies can serve the whole population. Will a few houses be able to serve the whole population? Old houses will be demolished or abandoned and kids will grow to become adults needing more houses.

There is still a positive population growth rate in the United States. That will translate to higher growth rate for new housing in the near future as the population grows and young people grow up.