Tuesday, May 31, 2011

So What Does the Tanking Housing Market Mean?

Housing prices have fallen to 2002 levels, but the financial markets responded with an end of the month rally today that ignored the bad news.

Standard & Poor's Case-Shiller Index reported today home price index has declined for eight straight month, dropping by 4.2% the first quarter of 2011.

The Dow Jones average went in the other direction, climbing 128.06 points after a rough month.

Felix Salmon at Reuters takes a shot at deciphering the disconnect between the housing and stock markets.

"I don’t have any good answers here, except to say that if housing is getting cheaper, in many ways that’s a good thing. Sure, it’s bad for banks, and it’s unpleasant for anybody who bought a house as an investment," Salmon writes.

"But in general, the less money we Americans spend on housing every month, the more money we have to spend on more productive sectors of the economy, and the higher our disposable incomes," he concludes.

The question is how long can the financial markets climb should banks feel the heat from the housing decline?

"As snake-bitten banks have discovered in recent years, the heath of the housing market is closely correlated to the health of banks," writes Wall Street Journal blogger Shira Ovide.

One reason the market shrugged off the data may simply be that we have known for months that a double-dip in the housing market was coming.

So this is going to be a wait-and-see moment, unless of course you are the American home owner who purchased property in the past decade thinking it would be a good investment. Those folks already know what it means for them.

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