The Investment U E-Letter: Issue # 464
Thursday, August 25, 2005 The Beginning to the End of the Housing Market? The Second "Story" on Housing…
by Dr. Steve Sjuggerud, Chairman, Investment U
I don't know how everyone missed it… As of yesterday, new home prices have spiraled downward for three straight months. They're down 14% in that time, from $236,300 in April, to $203,800 today. A drop of more than $30,000! Yet when the media reported on the housing market, exactly the opposite was stated… "New home sales defied expectations, rising 6.5% to break yet another record during July." That's what The Wall Street Journal reported on page C2 today in the markets section. But they left out a very important detail… The Second "Story" on the Housing Market: An Alternative View The way The Wall Street Journal reported the statistics, it seemed like home prices have been going up. But it was the number of houses sold rising 6.5%. The median price of a home fell in July alone by - get this - 7.2%. Quite a difference. Take a look at the chart below, in which the median price of new homes in the U.S. reflect a staggering decline in the market over the last few months: 
That's a pretty nasty drop, no? Why wasn't this reported with more fanfare? (To be fair, there was a brief mention - one phrase - on the drop on page A2 of The Wall Street Journal.)
From New Homes to Home Builders, It's the Same Story The stock market tends to lead the economy (that's why it's best to buy stocks in bad times, and sell them when times look too good). If this is true, then housing stocks (homebuilders) might be said to lead the market for new homes. It's been true… housing market stocks have soared for a few years now. But they've been falling in the last month or so. In fact, the entire index is down roughly 10% from its high a month ago, based on the following chart: 
Just When Will the Roof Start Leaking?
It's hard to say. Are stumbling new home prices and falling homebuilder stocks just blips in a continuing uptrend? Or is this the beginning of the end in the housing market boom? I don't know. Nobody knows when the housing market will turn. But with the plumbers and supermarket bag boys talking real estate investing on my island in Florida nowadays, we've got to be close to the top. Again, let me repeat… new home market prices have fallen 14% in the last three months. Now is not the time to speculate in real estate. Simply put, your downside risk is greater than your upside potential right now. My Advice on the Housing Market I've been telling subscribers to my newsletter to pay down their mortgage to the point of having more than 50% in equity instead of taking equity out and speculating in real estate. I suggest the same for you. I really believe that, in five years, you'll be very glad you did. Good investing, Steve Today's IU Crib Sheet: Related Articles: Return to Archives
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