[BillPaay]

While we continue to remain concerned about the financial and economic backdrop we should never stop looking for any glimmers of light that might temper this concern.

When it comes to housing there just may be a few glimmers. Whether this is a “new dawn” or a “false dawn” time will tell.

What we do know is that until housing and the financial markets stabilize there is little chance of the economy turning.

Below we show some of the charts that are showing that “glimmer” and are worth keeping an eye on in the months ahead.

Building permits

• Tiniest glimmer of a possible bounce?

Philadelphia housing index


• Triple positive weekly divergence at the lows
• Possible double bottom forming with neckline at 94.75
• A break above would argue around 135. However let us not forget while that would take us about 145% off the lows it would still be 54% off the highs.

S&P homebuilding index

• Could be interesting if it gets back over 263.25

Housing starts

• Trying to bounce from very oversold levels.(Good bounce in May 1980 was a head fake)

Initial claims(inverted) and Housing starts

• Good relationship although head fake in May 1980 before real turn 18 months later

Housing starts and non-farm payrolls.


• If housing could start to stabilize then we could eventually see that knock on to employment.

Lumber

• Positive momentum divergence at the lows and trying to complete a double bottom here.
• A break of the 178-180 area would suggest back to 215-220

[BillPaay]

Lumber and housing starts

• Not surprisingly these are closely correlated

Lumber and building permits

• Ditto

[BillPaay]

National association of homebuilders index

• Nothing to get excited abot-but at least we got an up-tick

Average 30-year mortgage

• Continues to push towards the double top target at 4.4% but has held good support at 4.90% first time around.

• Overall:
o There are definitely some glimmers here but it is too early to get too excited although we should be watchful
o Even if we entertain the idea that a base in housing is forming there has generally been quite a lag between that and the peak in unemployment

[BillPaay]

• Housing base in January 1970-Unemployment rate peaks in December 1970 (11 months)
• Housing base in February 1975-Unemployment rate peaks in May 1975 (3 months)
• Housing base in November 1981-Unemployment rate peaks in November 1982 (12 months)
• Housing base in January 1991-Unemployment rate peaks in June 1992 (17 months)
• Housing base in July 2000-Unemployment rate peaks in June 2003 (35 months- but that deterioration had more to do with equities than housing. Hence the peak in unemployment was extremely low at 6.3%)

Obviously with the fact that we have had a severe credit crunch, a severe housing downturn and a severe bear market in equities all at the same time the tendency would be to expect a fairly long timeframe between the base in housing (whenever it comes) and the peak in unemployment.

That in effect suggests it could be a long time before the FED tightens again and/or if they tighten too early they may have to back track on that move.

FED funds and unemployment rate


• Over the past 25 years the FED has waited between 6 and 20 months after the cyclical peaks in unemployment (4 occasions) before engaging in a full tightening cycle

So it is a case of watching this space for any nascent signs of stabilsation in housing to give us at least a shot in determining when that would filter into some stabilization in credit, the economy and ultimately unemployment.

As yet it is still too early to make that call