Tuesday, May 26, 2009

Housing Market & Home Builders Future

Today we got the housing data that showed "no evidence" that home-price recovery is here. This should not come by surprise to savvy investors, but for those who listen to "talking heads" in CNBC it was very surprising because they've been told "we see the green shoots of economics..." . They put their heads in the sand. Let's face it the housing market is not going to improve anytime soon. There is so much supplies and to little demands, and tightening the credit does not help the situation. The housing bubble was due to easy credit that won't come back any more. Banks facing the liquidity crisis therefore they are going to hold to their cash and would not lend.

When people losing their jobs, they will be in danger of defaulting on their mortgages and this vicious cycle will continue. When people get older they tend to sell their houses and buy a smaller one. Huge wave of baby-boomers would be a disaster for home builders because it mostly adds to supply. We are dealing with over 10 million access houses in the U.S. , I need to mention this data does not include +600,000 shadow inventories*(1). Banks try not to be in the business of owning homes, and vast shadow inventory of foreclosed homes that banks are holding off the market could wreak havoc with the already battered real estate sector. Home builders would not see the recovery in years to come even if the house price bottoms by next year.

Home builders ETF is in the conformed down trend (in blue line). It broke the uptrend 2 weeks ago and it's bouncing at the critical levels, 50,90 & 100EMA became horizontal and it has been moving in this range in last couple days, break below these levels would be the sell signal.

*(1)shadow inventories:(houses that are not in the market and owners are waiting to see some signs of recovery to put them for sells )