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Housing Double Dip Expected
Posted On Monday, June 21, 2010 at at 5:38 PM by Finance Fanatic
Stocks once again showed volatility risk on Monday, as what was once a 140 point gain on the Dow in early morning trading, turned into 8 point loss by close. Investor confidence is experiencing intra-day shifts which can pose as a disaster for trading (especially with stop losses). As a result, sources have told me that a lot of money has returned to the sidelines for the time being as things become sorted out.
Today's blip happened when China announced their decision to float their currency. China hopes that the move will stimulate inflation and help with exports in their economy. However, other countries reacted negatively to the announcement, considering that China has been the bailout source for many economies. It will be interesting to see how this effects trading in the long term.
Meredith Whitney publicly announced her concern for a "double dip" in the housing sector. This is not a new theory by all means, but anything being vocalized by Whitney definitely gets investor's attention. As of late, it seems that whatever comes from her mouth, becomes a reality. Today it was dealing with the decline in the residential market.
This should not be that hard to fathom. Just as Whitney said, banks are now beginning to accelerate their foreclosure process. Last year, this could not happen due to the extremely large demand of foreclosures mixed with the large lack of staffing in the banks to handle all the paper work and processing. Well, the banks have been ramping up the past year and have rebounded quite well, from a stock price standpoint, and are ready to take over your property (for the most part). The days of not paying a mortgage for a year will soon be at an end. As we do see an increase in foreclosures, you better believe that it will directly effect supply and home prices.
In addition to this, unemployment pressures continue to beat upon consumers. Thus, delinquency rates continue to climb. As foreclosures continue to be on the rise, a suggestion for a recovering (or even stabilizing) residential market does not make sense. Economics 101 states the simple principle of supply and demand, which when you apply to the housing market, supply way outweighs demand. I expect steep housing price drops as we move out of the busy season of summer into fall and winter.
As a result the market continues to be a volatile instrument. I expect to continue to see large volatile swings, which can be fun for you day traders, and dangerous. I do still think there is much more long term upside on the short side of the market at this point. As more uncertainties pile up, it will be reflected into market trading. Happy Trading.
The housing market will not get back on its feet for another ten years.
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