New Issue of Money and Markets Housing and Stock Market Still Warrant Caution from Investors



Mike Larson examines the marketplace and housing industry and gives important updates on both. Mr. Larson takes a closer look at all the declining markets in the U.S. and explains what could potentially be expected.

The Conference Board announced that its consumer confidence index had plunged to 64.5 in March from 76.4 in February. That's the lowest reading in five years and far worse than the 73.5 number that economists were looking for. The outlook index, which measures what consumers think about the future of the U.S. economy, fell to 47.9 which is the lowest level since 1973. S&P/Case-Shiller reported that its index of home prices in 20 top metropolitan areas fell 10.7% year-over-year in January. That's worse than the 9% drop in December, the 13th straight fall and the biggest decline on record.

Plus, the U.S. is witnessing even more dramatic declines in key markets: Las Vegas and Miami, down 19.3%, Phoenix down 18.2%, San Diego off 16.7% and more. Orders for durable goods tanked 1.7% in the month of February. That was far worse than the 0.7% gain Wall Street economists were looking for. In other words, any doubt that the U.S. is in a recession or on the verge of one is being rapidly extinguished by wave-after-wave of cold reality. Are things poised to get better Not any time soon, as far as Larson is concerned. That's because the credit problems have spread and will continue to spread beyond the home mortgage arena.

The market for leveraged buyouts is collapsing. A $19.4 billion deal by Thomas H. Lee Partners LP and Bain Capital Partners LLC to take over radio and billboard advertising firm Clear Channel Communications. It looks like the banks that so eagerly signed up to finance the transaction back in the "anything goes" period are balking at their commitments, so the PE firms are suing them. Of course, it's easy to see why the banks are fearful: The value of leveraged loans is falling fast. These types of debts have already been marked down by about 15%, according to the Wall Street Journal, meaning the banks would be looking at a hit of a few billion dollars if the deal closed. Collapsing deals are bad for bank and brokerage earnings. They also drain confidence in the market. Here's something else to think about: One reason the bulls cited for buying stocks in the past few years was the possibility they could catch a buyout bid. After all, private equity firms, loaded with cash and bank lines, were busy taking over companies left and right.

Earnings trends are rapidly deteriorating in many industries. Earnings, for companies that actually have profits rather than losses that are falling in many industries. Indeed, the economic weakness is affecting tech titans, retailers and all kinds of other firms.

As far as housing goes, new home sales fell to a seasonally adjusted annual rate of $590,000 in February. That was down from $601,000 in January, down roughly 30% from a year ago, and the lowest level since February 1995. If you measure inventory on a month's supply at a current sales pace basis, you see it would take 9.8 months to clear out all of the homes that are for sale. That's the highest since 1981.

Meanwhile, the price of an existing home dropped 8.2% from a year earlier. That was the sharpest drop seen in this cycle, and it leaves home prices at the lowest level since May 2004.

However, the February housing numbers also revealed a glimmer of hope. That sharp decline in home prices actually spurred an uptick in existing home sales. They rose 2.9% on the month to $5.03 million, though they were still off 24% from February 2007. That's a change from what's been seen for a while: prices falling, but potential buyers just shrugging their shoulders and going about their business. The raw number of new and existing homes for sale has also been ticking down lately.

Lastly, the Fed's latest rate cut, plus the other actions it took to loosen up the credit markets, caused mortgage applications to surge recently. The key question going forward: Will this short-term sales momentum hold through the heart of the spring selling season

"On the one hand, tighter mortgage lending standards, slumping consumer confidence, and the worsening job market argue for weaker sales. On the other hand, the recent moves to raise jumbo loan limits in certain high-cost areas and to expand the FHA loan program should help some potential buyers. The other steps aimed at restoring liquidity in the secondary mortgage market have also temporarily calmed twitchy bond investors. Regardless, there's one thing that's clear on the housing front: Sellers will have to continue lowering prices to attract buyers. After all, that is what is driving the recent uptick in demand," Mr. Larson states.

To read this issue online, please visit:

http://www.moneyandmarkets.com/Issues.aspxHousing-and-Stock-Market-Still-Warrant-Caution-from-Investors-1597

About Mike Larson and Money and Markets

Mike Larson joined the company in 2001, and has more than 10 years of experience researching and writing about personal finance, investing, and the housing and mortgage industry. In 2003, Mr. Larson was named associate editor of the company's monthly Safe Money Report. In this role, he is responsible for writing and editing as well as analyzing trading opportunities for clients. Mr. Larson is also a regular contributor to the company's daily e-letter, Money and Markets.

Before joining Weiss Research, Mr. Larson was a personal finance reporter for Bankrate.com where he wrote extensively on mortgage lending, banking, residential real estate, and Federal Reserve Board policy. His responsibilities included analyzing economic data and interest rate trends for a weekly column and developing rate forecasts for a regular index feature. Previously, Mr. Larson held positions at Bloomberg News and the Boston Herald.

Recognized as an interest rate and mortgage market expert, Mr. Larson's views have been quoted in the Washington Post, Chicago Tribune, Dow Jones Newswires, Reuters, Sun-Sentinel and the Palm Beach Post. He has also appeared as an investment expert to discuss the housing market on CNBC, CNN, and Bloomberg Television. His writing has been acknowledged by both the National Association of Real Estate Editors and the Massachusetts Press Association.

Among the first analysts to call the housing slide, Mr. Larson's new policy paper, "How Federal Regulators, Lenders and Wall Street Created America's Housing Crisis: Nine Proposals for a Long-Term Recovery" has received broad media coverage following its July 2007 submission to the Federal Reserve and FDIC. Mr. Larson holds B.A. and B.S. degrees from Boston University.

Money and Markets (www.moneyandmarkets.com) is a free daily investment newsletter from Dr. Martin Weiss and Weiss Research analysts offering the latest investing news and financial insights for the stock market, including tips and advice on investing in gold, energy and oil. Weiss Research, Inc. is located in Jupiter, Florida. For more information about our editors, or to set up an interview, please contact Jennifer Moran at 561-627-3300 or visit www.moneyandmarkets.com.





New Issue of Money and Markets Housing and Stock Market Still Warrant Caution from Investors