It all comes down to home prices
When home prices stop going down, the worst of the credit crisis will have ended as banks can confidently quantify their exposure, investors can feel comfortable with taking on certain risk, many homeowners will stop the drowning on their mortgage, home buyers won’t have lower prices to wait for and the important wealth effect can stabilize. Home prices rose m/o/m in May for the first time since July ’06 and is expected to rise again m/o/m in June according to today’s S&P/CaseShiller 20 city home price index. The y/o/y drop is expected to be 16.4%, the slowest pace of decline since July ’08. However, because the prime area of housing is now under growing stress, price declines in this area will in my opinion reverse the temporary stabilization signs we’re seeing now in the aggregate. The FHFA price index is also out and has shown more modest price declines. Consumer confidence is out too. Chinese stocks broke its 3 day winning streak in response to yesterday’s comments from Premier Wen basically saying the recovery won’t all be smooth sailing. The rest of Asia followed.
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August 25th, 2009 at 12:45 pm
China led the rally out of the last deleveraging winter, and it will lead us down again into the next one.
August 25th, 2009 at 6:24 pm
Housing construction and sales also are a big sector of the economy, currently about 6 percent of GDP. If that falls 30 percent to 40 percent, as it has in previous downturns, that’s a drop of about 2 percent of GDP.
As this housing wealth disappears, people cut spending. We already have seen an enormous drop in the amount that people borrow on their homes, from $600 billion in 2005 to about $350 billion for 2006. It was this borrowing, enabled by soaring house prices that allowed people to borrow more against the value of their homes, that fueled the U.S. economic recovery since 2001.
Read More:http://www.housingnewslive.com/articles/housing-bottom.php