Monday, January 23, 2012

Hard data pointing to a loaded spring.

Post by Mike
Conditions are right for a big swing in the housing and real estate recovery, and here is hard data showing we are sitting on top of a loaded spring.

Last week I suggested that inventories, values and interest rates were at low levels. Today I found the following charts. The first one is from the U.S. Treasury and presented by the CFR. It shows how home prices have declined since the end of the recession as compared to the other post war recovery averages.

My theory is that the inventory was so large (and lending so loose in the boom) that working the mess through the pipeline had caused this deflation.

The next chart is from the St. Louis Fed. It shows M2, or the money supply. Obviously, the FED has been pushing money into the system. The only problem is it has not been reaching the broader economy, as shown in the third chart which is the velocity, or movement of money. 

While the FED has been doing it's part, the banking sector and corporate America appear to be sitting on piles of cash. Also notice the low interest rates.

Like a compressed spring, the tension is building in the system. At some point buyers are going to borrow, banks are going to lend, and all that money on the sidelines will spill into the market.

When that happens, you are going to see the bull return to the real estate sector. Why real estate instead of stocks? A few reasons - 1 - Wall Street has lost a lot of trust. 2 - Real Estate is depressed. People like to buy low and sell high.

Get ready, the real estate market will inflate again.  

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