NAHB/Wells Fargo housing market index dropping to 42 -- its lowest reading since April 1995
Something always irked me when we played Monopoly as kids: Most of the folks playing went bankrupt, leaving the winner nowhere to spend the ridiculous wads of worthless currency they had accumulated.
Sound familiar?
When the stock market was in the toilet, the bright guys in Washington figured they would patch things up by dropping the dollar near zero interest rates. Suddenly, it took more dollars to buy the same stock shares, and bingo: instant rally (on paper anyway).
Now you’ve got hope the rubes would convert this imaginary largesse into something useful and tangible before it evaporated and hung the market out to dry. They didn’t and it is twisting in the wind.
They didn’t put their monopoly money into something productive: instead, they dumped it into hotels on Park Place: ridiculously large houses on tiny little lots a million miles from any work.
And soon, no one will be able to pay to live there.
Thus the air from one bubble quickly inflates the next. And now, the entire Goldberg perpetual motion contraption is teetering on the brink of collapse.
Some have said that there is no transmission point for a “housing malaise” to quickly spread into the stock market.
I’ll agree that a housing collapse happens in slow motion because there is no central clearing for houses: rather they just sit on the market unsold and rotting. But this applies only to old houses.
New “homes” (shudder) do have a means whereby the collapse becomes quite visible: The share price of stock-held homebuilders.
I don’t know what they are telling outsiders (I’m sure it’s long, involved, tortuous and as deceptive as possible), but here’s what they are telling each other: The National Association of Home Builders’ own poll is currently at an 11-year low.
Keep in mind that anything under 50 indicates that builders think that the future is unsettling at best. So I guess we could say that the NAHB/Wells Fargo housing market index dropping to 42 -- its lowest reading since April 1995 -- is downright terrifying.
It’s no sudden reporting fluke either: this figure has declined in 10 of the past 12 months by a total of 30 points, matching the steepest year-over-year plunge in the 21 years they have bothered to keep track.
A month ago, the NAHB was projecting a 7% decline in housing starts. Now it has nearly doubled that to -13% in 2006.
And as I mentioned, large builders and the companies that live off them have been one of the market’s primary props.
Kick it out, and a slow-motion decline can accelerate quite quickly.
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