Housing Still A Fixer-Upper
Because the Forecasts focuses tightly on stocks — in particular the 37 stocks on our buy lists — we devote little space to stories that do not directly affect our featured companies. That is why you rarely see us discuss the housing market. We haven’t recommended the stock of a homebuilder in more than a decade.
The housing market has an outsize effect on overall consumer sentiment and spending. As the chart below shows, the S&P/Case-Shiller Home Price Index has fallen 29% from 2006 highs, though it has risen gradually since hitting a six-year low in April.
The decline in home prices put pressure on a lot of consumers and paved the way for the global credit crisis. While prices have begun to rise, they remain well below the highs reached in 2006. Those low prices have in turn stunted the construction market. The 16 months from October 2008 through January 2010 represent the 16 lowest monthly totals for housing starts since the U.S. Census Bureau began reporting the data in 1959. Even low prices and federal tax credits have not solved the industry’s problems, as new home sales fell to a record low in January.
While the numbers are far from robust, at least two factors offer reason for optimism.
• First, while low home prices may stress the finances of homeowners, they do make it easier for first-time homebuyers to take the leap.
• Second, the labor market has been improving, albeit very slowly. Continued improvement could drive more Americans to take advantage of low mortgage rates.