By Susan C. Walker
Two items to file under the topics of "no surprise" and "pleasant surprise":
Surprise or not, both the housing numbers and the 6-for-6 batting numbers are eye-popping. It's nearly unheard of to get a hit every time a batter comes up to the plate during a game. After all, an average of .333 means one hit out of three at bats – and .333 is an excellent average for a major league ballplayer. Most hit between .250 and .300.
The same holds true in financial forecasting. It's nearly impossible to get it right every time you make a call. So, it goes without saying that Elliott Wave International and other forecasters – like baseball players – will swing and miss more often then they get a hit with their forecasts.
But when it comes to calling the housing market, EWI's forecast was right on the money back in August 2005. I know, because I wrote an article for Dow Jones Market Watch. It was about the outlook for the housing market, based on our analysis of the S&P Homebuilder's chart that had risen exponentially, carrying homebuilder's stocks up 928% from their 2000 low to the July 2005 peak. Here's what I wrote:
"And, now, midway through August, the top seems to be in place. Even though many commentators suggest that the housing bubble will fizzle out rather than pop, EWI's analysis says that the continued belief that 'it may be a bubble, but it's a nice bubble' is another signal that the coming real estate debacle will do far more damage than most economists and investors are willing to imagine. So, as an investor, it's time to look sharp and not be swayed by the siren song of how well the mortgage business is doing or how much housing starts are growing or how high median home prices are rising." [Dow Jones Market Watch, August 20, 2005]
The news for homebuilders, homebuyers, and investors has followed a downward trajectory for the two years since then. In fact, you might say housing was now hitting below the infamous Mendoza line. That's baseball talk for a batter hitting below .200. For instance, from its peak above 1,300 in July 2005, the S&P Homebuilder's Index is now below 575. And home prices are dropping like stones, as shown by the latest numbers from the S&P/Case-Shiller index. This bad news for homeowners causes larger problems for the U.S. economy. As an article in Bloomberg today puts it:
"Declining residential construction has detracted from overall economic expansion for the last seven quarters, trimming growth by 0.5 percentage point in the second quarter. Falling home prices are affecting consumers, helping to slow spending growth to a 1.3 percent pace in the April-to-June period after the prior quarter's 3.7 percent rate." [Bloomberg, July 31, 2007]
Whether you are interested in the housing markets or the economy, whether you are a buyer, a builder a banker or a broker, the larger ballgame is still going on. If you would like to become a player in your own right, you might be glad to get some "batting instruction." EWI's Wayne Gorman has created an online course about real estate trends that could help you make more sense out of the housing market. For more information, check out Real Estate Trends.