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Strategies & Market Trends : The Residential Real Estate Crash Index -- Ignore unavailable to you. Want to Upgrade?

To: patron_anejo_por_favor who wrote (98794)	1/2/2008 6:37:46 PM
From: Perspective	Respond to of 306849

I'm wondering if we aren't about to see the heavy hitters in the indices play catchup to the downside. Many of the biggest NDX stocks were down on pretty good volume today. They certainly haven't discounted a slowdown, much less a recession. I can't figure how AAPL, now clearly a consumer stock, could avoid a cutback in consumer spending. And semiconductors started off on a pretty sour note. I like my short positions, but at some point it will be time to rotate out of small fry shorts and into index-oriented shorts. `BC

To: patron_anejo_por_favor who wrote (98794)	1/2/2008 8:32:59 PM
From: Sea Otter	Respond to of 306849

WSJ: Fed Economists Model 15% Housing Fall ============== online.wsj.com U.S. house prices "likely would have to fall considerably" to return to a normal relationship with rents, says a study by one former and two current Federal Reserve economists. The study, which doesn't necessarily reflect the views of Fed policy makers, suggests prices would have to fall 15% over five years, assuming rents rose 4% a year. House prices would have to fall further if the adjustment took place more quickly. The study tracks rents and home prices back to 1960 and found annual rents fluctuated at around 5% to 5.25% of home prices until 1995. At the end of that year, the average monthly rent was about $553 (or about $6,600 a year) and the average home price was about $134,000. But starting in 1996, home prices started to grow much more rapidly than rents. By the end of 2006, they had more than doubled to an average of $282,000, while the average rent had risen 48% to $818. That drove the annual rent/price ratio down to 3.48%. That means the rent/price ratio is about a third below its long-term average. To return to normal would require some combination of falling prices and rising rents. The paper suggests house prices would need to fall about 3% a year, if rents grew in line with their 4% average annual growth this decade. Of course, the link between house prices and rents can remain out of whack for years. The U.S. study is by Morris Davis, an economist at the University of Wisconsin-Madison and until 2006 a staff economist at the Fed; and Andreas Lehnert and Robert F. Martin, staff economists at the Fed. MORE Read the latest news and analysis on the economy at WSJ.com's Real Time Economics blog. The authors' methodology was based in part on previously published work by Fed economist Joshua Gallin. The same approach is used by many other analysts, including the Congressional Budget Office, which arrived at similar conclusions. In an interview, Mr. Davis said lower long-term interest rates can explain only a small part of the drop in the ratio. "To justify current price levels, you need rapid growth in rents." But it's hard to imagine the scenario that would justify such rapid growth in rents, he added. Indeed, it's possible rents will grow more slowly than 4%, reflecting the overhang of unsold homes that might be rented out. Mr. Davis said the authors postulated a five-year horizon for the rent/price ratio to return to normal by looking at previous downturns. "When a downturn begins, it will last for a while."