The State of the Markets - 4/1/09
The month of March brought a degree of chaos to the financial markets, and indeed to the country as a whole, not seen in, well, months.
The stock market culminated another wave of selling with multi-decade lows, only to rebound in the strongest counter-trend rally since the bear market began last year. The AIG bonus scandal whipped the media, the public and Congress into a frenzy. General Motors lost its CEO at the hand of the President and we learned about Washington’s (latest) last ditch effort to save the financial system.
Meanwhile, the housing market gave investors and homeowners alike a ray of hope: A pop in February’s new and existing home sales. Optimistic pundits declared the housing market’s bottom just months away, while prices stubbornly maintained their distinctly southward trend.
Most economists use these broad trends to “predict” how far home prices will fall and when we’ll ultimately bottom. Data on the national level, however, just isn’t useful to most people. After all, whether you’re buying your first home or plunking down your savings on an investment property, the most important house is the one you’re buying, not some statistical collection of millions of unique properties.
This month’s Chart of the Month illustrates how thoughtful analysis can be used to identify trends the widely quoted data overlook. Prices for smaller homes on the Peninsula peaked first in late 2006 and have slid steadily ever since. Bigger houses, on the other hand, held up better but have fallen almost as far in half the time. This mirrors the trend that Prime mortgages are now souring faster than subprime.
In the coming months, we’ll be watching closely to see if any of these groupings bucks the prevailing trend — will the first group to crack be the first to bottom? Or will the high end’s fall be short and sweet?