Schwab's Article on Housing Market and Stock Market

[Buck]

Very interesting article:

http://www.schwabinsights.com/2006_09/mktoutlook.html

[Salzmann]

That's really scary. I was surprised at the correlation between the Housing Market Index and the S&P 500. You'd think that if people lost faith in real estate investments, they'd invest in stocks instead.

I blame the mortgage companies- they'd loan money to anyone who was breathing and could sign on the dotted line, and many customers were absolutely clueless about the implications of ARMS, option mortgages, interest-only mortgages and other variations on the traditional fixed-rate mortgage. Add that to multiple cash-out refinancings and you have no equity left and monthly payments you can't afford.

[Baron Von Raschke]

Anyone who is a net saver should hope for lower stock prices in the short term.

[Pseudolus]

Two quick things to note:

1) Keep in mind that the NAHB index is just an opinion poll of homebuilders on what they think their business outlook is. Sometimes the factors that influence their opinion may have a great effect on the rest of the economy, sometimes not.

2) What does the graph look like for a longer time period? The stub we see of 1994-5 sure doesn't look so correlated. It's quite possible that the matching overall pattern of the two indices over the time period shown - they went up, they went down, they went up, (one went down) - is merely coincidental.

[Salzmann]

Originally Posted by Baron Von Raschke

Anyone who is a net saver should hope for lower stock prices in the short term.

Yeah, yeah, I know. But all those unrealized capital gains now in my portfolio are MINE and I don't want them to disappear!

[The Mantastic Actuary]

so sell some holdings now and short a bunch. If this article is right... you'll be filthy rich. If not, well who needs to retire anyways

[HangerAngler]

Am I the only person that gets the following out of that graph:
Our economy has largely ridden the coattails of the housing market over the past decade.

??

[Klaymen]

Originally Posted by Salzmann

Yeah, yeah, I know. But all those unrealized capital gains now in my portfolio are MINE and I don't want them to disappear!

Then realize them already!

[tommie frazier]

hanger-you needed this study to get that? not all the people tapping into crazy equity bumps to keep spending and spending beyond their income level?

[Baron Von Raschke]

Any study that inludes stock market results from the late 90's as an indicator of future movements is highly suspect. If you stare at the tea leaves long enough, you will surely think you have found a pattern. I could probably put together a graph that shows a correlation in the late 90's between the Yankees winning the World Series every year and the S&P 500 going up. Perhaps the Yankees fueled our economy back then as well.