There is one important chart I look at on a daily basis to see where the housing market in the U.S. is headed, and that is the Dow Jones U.S. Home Construction Index — basically a chart of the biggest home builders in the U.S., if not the world.
Back in mid-2005, that chart, at about 1,100, topped out and started heading straight down. I remember reading reports about investment funds buying stocks in home builders in 2006 because they were hit too hard. I thought, what are these investors drinking? Don’t they read charts?
Today, the same chart is telling us housing prices/activity is headed toward the same as mid-2003. I am a big believer in stocks and stock market indices as being leading indicators.
So if this important chart is trading at the same level as mid-2003, six to 12 months from now the housing market in the U.S. will look just as it did in mid-2003… which is terrible news for the property market and overextended consumers.
The Dow Jones U.S. Home Construction Index sits at 467 today, a far cry from the 1,110 it was trading at in 2005.
According to the widely followed ForeclosureS.com web site, foreclosures are up 41% in the U.S. in the first six months of this year compared to the first six months of 2006. Home sales in the U.S. will hit the lowest levels this year since 2001. And as for the home builders themselves, D. R. Horton just reported a severe quarterly loss ($836 million), while Beazer Homes also reported a big loss, as revenues fell 37%.
Watch this chart, the Dow Jones U.S. Home Construction Index, at www.bigcharts.com to see where housing prices are really headed in the U.S. It doesn’t look pretty right now.