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Challenging the Bulls Is the Housing Market Still a Threat to the Stock Market





Coming off the rally stocks have seen in the latter half of 2010, hopes are high for 2011. But several dark clouds remain on the economic horizon, with the lingering housing crisis looming largest. Unlike most other industries, the sector has yet to stage anything resembling a recovery. And the light at the end of tunnel may be further off than anyone would care to admit. David Rosenberg of Gluskin-Sheff argues that if anything, we're underestimating the depth of the housing slump. Right now, "the unsold existing inventory is still 80% above the historical norm, at 3.7 million" not including the "shadow" foreclosed inventory that banks are holding off the market.

A study by the Dallas Fed determined that in order for the industry to return to its historically average state, home prices would need to see another 23% decline. And Rosenberg thinks it could take until 2015 for them to get there. Among the major obstacles to a housing recovery is access to credit or lack thereof. Theoretically, today's low interest rates should incentivize home sales. The problem is, not enough buyers actually qualify for them.

Brian Chappelle, mortgage consultant for Potomac Partners, thinks that once loan-happy lenders have overcorrected their practices, and have now become too stingy. Fannie Mae and Freddie Mac have strong-armed banks into buying back loans gone bad, making these lenders skittish about issuing new ones.

So while Fannie and Freddie are ostensibly saving taxpayer money, one could argue that their efforts may be doing more harm than good.

Think the housing market will continue its downward spiral in 2011? To help answer the question, we went to the options market to find the stocks that are expected to signal a housing market rebound. Tracking the performance of these "indicators" might provide a few clues over the coming weeks. To create this list, we started with a universe of about 100 housing-related stocks. We then narrowed down the list by only focusing on those stocks that have a large number of open call option positions relative to put option positions i.e., bullish options market sentiment. All options data has been sourced from Schaeffer's Research. (Click here to access free, interactive tools to analyze these ideas.)

About Author Prince Damin :

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Article Added on Sunday, October 2, 2011
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