Falling Home Prices Raise Bulls' Wall Of Worry

Add to stock market bulls’ wall of worry a drop in West Coast home prices for the first time in seven years. This is part of a larger trend that saw U.S. home sales down 2.2% compared to a year ago. That’s the 16th straight month of annual sales declines, even as mortgage rates have fallen since last October from 4.95% to 3.75%. Some observers profess to be mystified, since the economy appears to be going great guns. Unemployment is near 50-year lows, wages are rising and GDP growth has been solid.

The trouble is, home prices are so inflated that first-time buyers, even those with good jobs, have been priced out of the market. The fortunate few employed by Google, Facebook, Amazon et al. who can theoretically afford to buy a home in the Silicon Valley, Seattle or L.A. are understandably skittish about paying top dollar in a bull market as mature as this one. They can see what the rest of us see — i.e., a pronounced economic slowdown in China and Europe that is certain to spread to the U.S. As long as they believe there’s no great rush to buy, home prices will continue to weaken. If the bull market in stocks were going to boost home sales, it would have happened already, since the broad averages are trading at or near record highs. If shares move higher nevertheless, it will only heighten fears of a bubble ready to pop.

www.rickackerman.com

********