How The Housing Market Could Hurt The Stock Market Rally
The market appears to be doing much better this week. The Dow is up nicely into the 8,500s, the Nasdaq has risen nicely well into the mid-1800s, and the S&P slowly closing back up through the 900s.
The headlines on Yahoo’s financial page going into the afternoon mostly read optimistically:
- Strong Results At Intel Pull Stocks Sharply Higher
- Credit Card Defaults Up Less Than Expected
- Oil Above $61 As US Supply Falls
Even somebody as deeply entrenched in the bear camp as I am has to acknowledge that those are all positive signs. But we’ve seen positive signs before this year… and we’ve seen negative. And right now, I don’t see any proof that this latest information can support long-term upwards action in the stock market anymore than anything else we’ve seen lately.
Still, I’m not going to say it isn’t a nice thought to think that the bull is back. But despite little bumps up here and there, the housing market still is far from healthy. In fact, I’d even go so far as to say it’s still hospitalized. So the question comes down to “How the housing market will affect the stock market negatively” and not “Will the housing market affect the stock market negatively.”
“New Downside Pressure”
To illustrate this, I’m going to turn to snippets of an article posted on MSN money today, originally published by The Wall Street Journal:
“The housing market is facing new downward pressure as holders of subprime mortgage bonds flood the market with foreclosed homes at prices that are much lower than where many banks are willing to sell.
“While nationwide figures are scarce, a review of thousands of foreclosures in the Atlanta area shows that trusts managing pools of securitized mortgages sold six times as many properties as banks during the six months ended March 31. And homes dumped by subprime bondholders sold for thousands of dollars less on average than bank-owned properties, the data show.
“Experts say this is a bad omen for residential real-estate prices and homeowners trying to sell or refinance, because the fire sales, many to cover soured subprime loans, put downward pressure on the value of nearby homes. All of this undermines federal efforts to stabilize the housing market and revive the broader economy.
‘”While the banks are trying frantically to get loans off their books, they face the problem of large shadow inventories of housing being dumped on the market, which would depress prices further,’ said Anthony Sanders, real-estate finance professor at George Mason University in Fairfax, Va.”
The rest of the article is equally telling, but I’ll let you read the dirty details on your own. But I would say that just the four quoted paragraphs above alone are enough to be concerned about.
Wednesday, July 15, 2009 - by Jeannette Di Louie, Assistant Editor, Mt. Vernon Research
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