Chart In Focus
Final Dip Coming For Housing Market
McClellan Financial Publications,
Inc
Posted Dec 14, 2009
December 11, 2009
Back on August
28, I shared this same chart for our Chart In Focus readers.
Given the seeming rebound in home sales, it is an appropriate
time to revisit this issue.
I have come to appreciate in
recent years the real value of watching lumber prices, because
they are a great economic indicator. The movements of lumber
prices show up again about a year later in interest rates, and
also in home sales as shown in this week's chart.
Home sales volume bottomed
in January 2009, a year after the Jan. 30, 2008 bottom in lumber
prices. Starting in April 2009, we have seen a rise in
the rate of home sales, which many have attributed to the federal
tax credit for new home buyers. It is hard to know exactly
how much of that rise can be attributed to that tax credit, since
a person's specific motivations for buying a home are complex,
and cannot be distilled down to just one single factor.
What I can say is that the rise so far matches a similar rise
a year before in lumber prices.
That 2008 rally in lumber prices
failed to break the long downtrend line, and lumber fell to an
all-time low (at least in terms of lumber futures prices, which
have traded since 1972). That all-time low was on January
29, 2009, and so it means that home sales ought to bottom about
12-13 months later, in early 2010. For home sales to do
that, they are going to have to turn downward from here.
Perhaps the tax credits will
provide a counter-cyclical boost to the home sales, rate, moving
forward some sales that would otherwise happen in the future.
We will know for sure a year from now how those tax credits might
have bent the correlation between these two sets of data.
One good piece of news for
those awaiting a housing recovery is that lumber prices in late
2009 have now broken the long downtrend, and pretty decisively.
This means that by the end of 2010, we should be seeing home
sales rates rising of their own accord, without the government's
thumb on the scale. But there should be a bit more of a
soft spot evident in early 2010 before that rise starts to become
apparent.
Tom McClellan
Editor, The
McClellan Market Report
email: tom@mcoscillator.com
website: www.mcoscillator.com
(253) 581-4889
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