How Do We Track Housing?
Posted by Larry Doyle on March 12, 2009 7:07 AM |
At the core of most, if not all, of our economic problems lies housing. I do not need to replay the tape of low rates, shoddy underwriting, and Wall Street securitizations that all played a dramatic role in creating a bubble the likes of which we have never seen and hopefully never will again. All that said, housing is an enormous market with a wide array of factors impacting it. How does one track it? Are we supposed to rely on our local brokers telling us things feel better? Should we ask contractors if they are bidding on jobs? Dare we rely on our local or national media outlets to provide their expertise and pandering? If we did, housing may have bottomed 14 different times in the last 10 months. In all seriousness, how can we track housing? Welcome to Sense on Cents.
There are two indexes that have developed over the last few years and are enormously respected by market participants. One index, the S&P/Case-Shiller Home Price Indexes, is released on a monthly basis. This index tracks a variety of regions in the country but not every region. Still, all things considered, this index is widely watched as a reliable indicator of health in housing. The index is typically released toward the end of each month. The most recently released report was on February 24th, A Look at Case-Shiller Numbers, by Metro Area. In this report, all indications are that housing has yet to see any support.
Aside from the Case-Shiller Index, there is another index that tracks trends in housing and allows investors to reflect their opinions. This index, the ABX (Asset Backed Index), was created a few years ago by Wall Street to track trends in housing. Clearly given the emphasis on Obama’s housing, plans put forth by Secretary Geithner would have put some optimism in this index, right? Well, we are all aware of the enthusiasm put forth in Obama’s plan to support housing; however, no plan is a panacea and every plan has unintended consequences. Despite the best intentions in Washington, the market sees no bottom in housing.
The ABX is not traded on an exchange and thus easily tracked. Enter my friends at 12th Street Capital who shared with me a few days ago that the “ABX went out at its ALL TIME LOWs yesterday. The real money sellers continue to push it lower in conjunction with the stock market and other credit markets and clearly the street has no interest in supporting the current levels, hence unless you have some real money buyers come into the
market you could expect to see continued softening.”
There you have it. Both indexes that track housing are at all-time lows. Thus, while the stock market had a nice bounce the other day, before we get overly ebullient about the potential for stocks, we want to see if we are seeing any sort of support in these two indexes. For my money, these will be the first two indicators showing a turn in our economy and giving me confidence to invest in stocks.
Oddly enough, the ABX market did not participate in the rally on Tuesday. In 2008 I would have said that the next day rally in ABX would almost be a certainty, however with continued uncertainty regarding government intervention on mortgages and MBS, it seems most longs are carefully picking their spot in the MBS market.