A Double-Dip in Housing Will Drag Down the Economy

8/9/2019 A Double-Dip in Housing Will Drag Down the Economy

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Richard Suttmeier is the Chief Market Strategist at www.ValuEngine.com.ValuEngine is a fundamentally-based quant research firm in Princeton, NJ. ValuEngine

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March 25, 2010 A Double-Dip in Housing Will Drag Down the Economy

Serious delinquencies for single-family mortgages continued to rise in January. Tracking theS&P 500! New home sales declined again in February. Yields rise on a second weak US Treasuryauction with the 7-Year note on the docket today. Gold tests my quarterly pivot, Crude Oilapproaches my monthly pivot yet again, and the euro breaks below 1.34.

The Federal Housing Finance Agency (FHFA) shows that serious single-family mortgagedelinquencies increased again in January.


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Subprime ARMS delinquencies rose to 42.7% from 40.8% in January vs December Subprime Loans rose to 30.6% from 28.7

FHA Loans rose to 9.4% from 8.7% All Loans rose to 9.7% from 8.9% Prime Loans rose to 7.0% from 6.3% Fannie Mae Loans rose to 5.4% in December from 5.3% in November Freddie Mac Loans rose to 4.0% in January from 3.9% in December

It is difficult to be positive about the economy and the markets when the mortgage market remainsunder these statistical stresses. This is a sign that we face a double-dip recession led by housing andfinancials, as was the case with the peak in the home builders in mid-2005, community banks at theend of 2006, and the regional banks in February 2007.

Stocks peaked in October 2007, and the S&P 500 dropped 57.7% to its March 6, 2009 low. Therebound one year later has been 76%, which keeps the S&P 25.9% below that October 2007 high.

Chart Courtesy of Thomson / Reuters

New Home Sales declined to a record low in February to an annual rate of 308,000 units. Sure theweather was a factor, but of equal importance is the ongoing weak jobs market on Main Street, USA.

I say the main reasons for weakening housing market is that home prices remain 50% higher since theend of the twentieth century, tightening lending standards, and uncertainty that deals can go to contractby April 30 and to closing by June 30 for those looking at the $8,000 first time home buyer tax credit, orthe $6,500 move up tax credit.


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Those touting a housing bottom cite pent-up demand, but that demand will be met by the growinginventory of foreclosed and short sale homes resulting from the above delinquencies on homes whereowners can not be saved. This is expected to be 3 to 3.5 million in 2010. I also question pent-updemand as children move in with parents, or other forms of multi-generational households.

With regard to new homes, some builders cannot get construction loans, and material costs are on therise. Low interest rates have caused commodity speculation including lumber futures and othermaterials used in home construction. This makes it difficult to build a home cheaper than the prices offoreclosed or short sale existing homes.

This ZERO percent funds rate policy may have helped Wall Street, but it has caused pain on MainStreet. Wall Street speculates on commodities pushing building materials costs higher, while MainStreet citizens on a fixed income get ZERO in money markets. If Main Street had some interest income,perhaps spending can increase.

The TARP Inspector General was critical of the $50 billion programs to help home owners stay put. Itappears that the loan modification programs are delaying foreclosures rather than preventing them.Instead of helping three to four million homeowners, as promised by the White House, only 170,000have received mortgage relief.

Todays 7-Year Auction comes in the aftermath of a mediocre 2-Year auction on Tuesday, and a weak5-Year auction on Wednesday. I do not have a support for the 7-Year other than 3.457, which was thehigh yield at the end of 2009. The 21-day, 50-day and 200-day simple moving averages are convergedresistances at 3.107, 3.120 and 3.105.



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Comex Gold tested my quarterly pivot at $1084.9 on Wednesday. The 200-day simple moving averageis support at $1047.0. The last time gold approached its 200-day was last April when that level wasaround $900. My annual support is $938.7 with my annual pivot at $1115.2.


Nymex Crude Oil has met resistance in the $82 to $84 range since last October. If this tendency

continues, look for another test of its 200-day simple moving average at $73.85. Meanwhile my monthlypivot at $80.05 and $81.84 have been magnets since last Friday. Annual support remains $77.05.



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The euro broke below 1.34 with my weekly support at 1.3156. The November 2009 low was just above1.2300. The 21-day simple moving average is resistance at 1.3609.


Thats todays Four in Four. Have a great day.

Check out the latest Main Street versus Wall Street on Forex TV Live each day at1:30 PM. The next broadcast is Monday, March 8, 2010.

http://www.forextv.com/Forex/custom/LiveVideo/Player.jsp

Richard Suttmeier

Chief Market Strategistwww.ValuEngine.com(800) 381-5576

As Chief Market Strategist at ValuEngine Inc, my research is published regularly on the website www.ValuEngine.com. Ihave daily, weekly, monthly, and quarterly newsletters available that track a variety of equity and other data parameters aswell as my most up-to-date analysis of world markets. My newest products include a weekly ETF newsletter as well as theValuTrader Model Portfolio newsletter. I hope that you will go to www.ValuEngine.com and review some of the sampleissues of my research.

I Hold No Positions in the Stocks I Cover.

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A Double-Dip in Housing Will Drag Down the Economy