Thursday, June 08, 2006

Homebuilders' Stock vs.Nasdaq vs. S & P 500

This chart shows the performance of homebuilding stocks vs. The S&P 500, NASDAQ and the Down Jones U.S. Home Construction Index. The Dow Jones U.S. Home Construction Index charts the stock prices of home builders. Since stock prices generally reflect expected future earnings of a company based on all currently available data, the Home Construction Index gives a sense of what Wall Street expects the housing market to do in the future. Notice that homebuilding stocks even dwarf the late 1990's NASDAQ stock mania. [Thanks to James Parson who sent this information to me]


  1. David,

    Did you see the Washington Post article this morning? Two condo projects were scrapped because of low demand. One condo conversion project in Alexandria will not happen and other building in Annapolis will remain as rental units. I expect more news about condo failures in the next coule of months. Hello, MICA Condos....I mean rental apartments!

    The DC Condo Bubble
    Pop.Pop.Fizz.Fizz...Oh What A Relief It Is!

  2. I saw that article. Thanks for mentioning. The condos are the weakest part of the housing market in the DC area.

  3. Why isn't anyone jumping on this one? Frist, anyone? Hello? Echo?

  4. Somewhat off topic....But NPR had a short discussion of the markets' reaction to Bernanke's latest comments. You can find it here:

    NPR had another small piece of news early this morning about foreign markets getting a little worried about inflation talks by the FED....

    I am starting to think that all this talk about domestic and foreign markets getting super-sensitive to bernanke's hints might just make the FED think twice about another interest hike...He probably won't want to be blamed for economic chaos....What do you guys think?

    (BTW, the guest on NPR today is still convinced Bernanke will up the interest rates to establish a "tough on inflation" reputation, or something like it (I was half asleep when I had NPR on)...My spider sense tells me that might no longer be the case...but that's just intuition as opposed to an "educated" guess...)

  5. I think macroeconomic theory is quite clear. The unemployment rate tends to revert toward the mean, but inflation tends to build on itself. So, for the long-term health of the economy, if you are forced into the position of having to choose between fighting an economic slowdown and fighting inflation, you fight inflation. That's how Paul Volker ended the 1970's stagflation.

  6. From the NPR article above (here's the tinyurl to it--
    "The core rate of inflation is you take your consumer index and you strip out energy and food because they're very volatile and you're trying to figure out what's really happening to the overall price level. Core rate of inflation is running at 2.1 percent. The comfort zone for the Fed, and this you know typically what they say, is 1-2 percent. So it's one tenth a percent above the comfort zone. That doesn't sound like a runaway to me. "

    But when prices of one of those (or both) are volatile only one way (up) for about two years, meaning that volatility has had plenty of time to filter down into other "core" prices, that's a bogus argument. It's numbers like these that indicate, to me, just how "massaged" the gov't reported numbers are. I think we'll never see "official" run-away inflation again, as they'll always find a way to add or remove something to keep it low. Kind of like now.

  7. The way M3 has exploded since 1995,
    interest rates wont be able to
    tame inflation.

    But it will sure kill the US Economy.

    The Dollar will get some Oxygen from
    increasing rates. But then the Housing
    Mega Pop, will kill it.

    I think Ben only has the choice of "Which of these two gets killed first?"