Cart (0)
VIDEOWhy Are Home Prices Falling Again?
All too often discussions about home prices and the real estate market ignore the most fundamental of all economic indicators: confidence.
 |
|
Ask any housing expert worth their salt why home prices are falling again and you’ll likely hear a litany of reasons, all of which sound completely plausible: tax credit expiration, weak job market, high inventory levels, shadow supply, strategic defaults, negative equity, and a tight lending environment.
This sort of analysis isn’t wrong, per se, but all too often discussions about home prices and the real estate market ignore the most fundamental of all economic indicators: confidence.
Shifts in confidence are closely tied to movements in the stock market. And, as I've written previously, the stock market is the most widely used barometer for the country’s economic health. It stands to reason then that the relationship between stocks and home prices could be similarly close. (See also, Will Housing Slide Again?)
In fact, they are. Below is an updated graph where you can see how home prices and stocks tumbled in tandem throughout 2008, only to both find support at almost exactly the same time last spring.
Similarly, as stocks have swooned in recent months, so too have home prices begun to slip. And while it’s easy to point to the above factor as reasons for the fall, it only tells part of the story. At its core, buying a home remains a highly emotionally decision. For as much as we at Cirios preach that our clients should focus on making a sound economic decision, it’s impossible to leave emotions out of the picture.
When people read headlines about crushing debt loads in Europe, rising unemployment, bankrupt states, and the Gulf filling up with oil, it naturally affects the way they make economic decisions. Interestingly, however, this relationship may not be as straightforward as we may think.
Conventional wisdom favors the idea that events drive social mood -- that is, we react to what’s around us. Logical enough, but there's another school of thought: socionomics, which counters that social mood drives events, and specifically our reactions to those events.
In other words, just because there's an oil spill or because California is broke, people won’t necessarily get skittish and stop taking risk. Instead, prevailing social mood provides a context in which decisions are made. And depending on that mood, the whims of millions of unique minds, reactions to similar events will vary over time.
The theory isn’t yet mainstream, but as new media increasingly captures humanities real-time pulse, this isn’t the last time you’ll hear socionomics and social mood uttered in the same breath.
Trade ETFs? Our Grail ETF & Equity Investor newsletter provides analysis and specific trades featuring ETFs and stocks poised for big moves. Take a FREE 14 day trial and see how 40 of the last 42 trades have been profitable. Don't miss the next. Learn more.
The information on this website solely reflects the analysis of or opinion about the performance of securities and financial markets by the writers whose articles appear on the site. The views expressed by the writers are not necessarily the views of Minyanville Media, Inc. or members of its management. Nothing contained on the website is intended to constitute a recommendation or advice addressed to an individual investor or category of investors to purchase, sell or hold any security, or to take any action with respect to the prospective movement of the securities markets or to solicit the purchase or sale of any security. Any investment decisions must be made by the reader either individually or in consultation with his or her investment professional. Minyanville writers and staff may trade or hold positions in securities that are discussed in articles appearing on the website. Writers of articles are required to disclose whether they have a position in any stock or fund discussed in an article, but are not permitted to disclose the size or direction of the position. Nothing on this website is intended to solicit business of any kind for a writer's business or fund. Minyanville management and staff as well as contributing writers will not respond to emails or other communications requesting investment advice.
Copyright 2011 Minyanville Media, Inc. All Rights Reserved.
