Wednesday, January 31, 2007

The trend is you friend until…well, you know.

'The trend is your friend until it ends'. Many people chant that catchy phrase like a mantra, believing it means ‘follow the trend, it won’t let you down’. What it is actually saying is ‘you just don’t know when it’s going to turn, follow at you own risk’.
I think that sums up investing nicely.

Anyway, the trend for housing was up, way up for 2004 and 2005. The trend up has ended, the psychology changed. The trend is now down, the psychology goes without saying. It will surely remain trending in a downward direction for sometime, of course until it ends. No one cans say when that will be but we can guess.

After a sharp rise a trend will usually correct relative to that rise. (Big rise, big correction). After the crest there is often a rapidly increasing fall to an over correction on the downside. This followed by a move up slightly to a mean bottom or new stable low. It’s a predictable pattern.

In housing it seems we still have a ways to go. The acceleration is just starting. But if you pay attention you can se it happening.

I expect that this trend could over-correct at 70% in some parts of the U.S., with a later move back up to a 40% new mean low. Housing will probably hit these low lows within the next two years finally moving up and languishing at 40 to 50% off the highs for some years afterward. At least that’s how I see it.

The trend is your friend until it ends, whenever that is.
Vern

“The number of vacant homes waiting to be sold surged 34% to 2.1 million at the end of 2006 compared with the end of 2005, by far the fastest increase ever recorded, the Census Bureau reported Monday.”

“A year ago, 1.57 million homes were vacant and awaiting a sale. The vacancy rate for owned units jumped to a record 2.7% from 2.0% a year earlier. From 1965 to 2005, the homeowner vacancy rate had never been above 2%. The long-term average is 1.4%.”

“‘We have more than a million housing units of excess supply,’ said James O’Sullivan, an economist for UBS. ‘If you are looking for evidence that the worst is over for housing, you’re not going to find it in this report. This argues that housing starts need to go down more.’”

“Home-price appreciation weakened to its slowest pace in more than 10 years in the 12 months ending in November, MacroMarkets and Standard & Poor’s reported Tuesday. Home prices fell in 17 of 20 cities in November compared with October.”

“The last time prices were rising so slowly was in late 1996, at the end of a six-year period of flat or falling prices. A year ago, home prices were rising about 16% year-over year.”

“‘Countrywide, home-price declines appear to show no signs of slowing down,’ said Robert Shiller, chief economist for MacroMarkets, in a press release.”

4 Comments:

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