Housing Never Lies: Why An Economic Downturn May Be Ahead

Includes: GIS, HSY, MO, PG
by: Yaser Anwar

I wanted to share some very interesting charts and info I recently found. As you know housing starts are leading indicators of economic conditions.

Market Downturn #1

* Despite a one-month uptick on new housing starts, other data continues to reveal ongoing weakness. Falling building permits and buyer traffic, along with slowing sales and price increases, have combined with rising inventories in new and existing homes to create the most pessimistic outlook for residential real estate by homebuilders in 11 years.

* The housing boom over the last five years provided fuel for the U.S. economic expansion. According to the June 19, 2006 edition of The Wall Street Journal, “the real-estate sector has been associated with roughly 20% of the four million jobs created in the economy in the past two years."

* I couldn't get my bloomberg to take a snapshot of the EuroDollar futures but if you check the graph, you'll see the prices continue in a downtrend, because traders/investors believe the Fed will keep the option of rate hikes on the table.

* As you view the attached image, you'll see Housing & Consumer spending show a positive correlation. So is Housing vs Real GDP, exact relation as Housing vs Consumer Spending. In the Housing vs Consumer Spending relation, NAHB's housing market index appears to be a leading indicator, or atleast slows before consumer spending does & in Housing vs Real GDP too, thus leading to economic downturn.

Market Downturn #2

It's happening all over again, so i think its time to have names such as General Mills (NYSE:GIS), which was strong yesterday), Proctor and Gamble (NYSE:PG), Altria Group (NYSE:MO) & Hershey's (NYSE:HSY) in your portfolio allocations, as these stocks have done well in previous downturns.