Were Stocks to Follow Housing Market, S&P Would Trade Below 700!

Real estate downturns have a way of leading to recessions and stock market slumps, reports Fortune. Check this chart from Liz Ann Sonders, chief investment strategist at Charles Schwab & Co., that plots the National Association of Home Builders' Housing Market index - a monthly measure of builder confidence - against the Standard & Poor's 500 stock market index, with a one-year lag. 

It turns out that the mood of builders is a terrific stock market bellwether: The correlation between current builder confidence and future stock market returns over the past ten years is downright unnerving. Why worry now? Over the past year, the NAHB housing index plummeted 54%. Were stocks to follow suit, the S&P - 1400 in late October - would be trading below 700 this time next year. 

Some economists believe that the effects of the housing correction will be entirely contained within the housing sector. Corporate balance sheets are stronger than they've been in years, with U.S. companies sitting on $600 billion in cash. Interest rates are stable, and may decline. Falling energy prices are easing the burden on energy-intensive industries like chemicals and airlines.

Can the Economy Survive the Housing Bust? 

  • Real Trends newsletter thinks the Real estate brokers industry might end up loosing some 15% of its workforce or 200,000 agents.
  • In many once-hot regions, house order cancellation rates are running above 40%, new-home sales volume has dropped 50%, and new-home prices are down 10% to 25%. 
  • U.S. homeowners pulled more than $450 billion in equity out of their homes last year and are on pace for a similar bonanza in 2006. But the falling home prices could stall this.

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