Is the “false recovery” faltering? “Rally’s fate hinges on Fed, home sales”, Yet, “unlikely that housing wealth will drive consumer spending in the next decade – Reuters/University of Michigan Survey

Rally’s fate hinges on Fed, home sales

By Caroline Valetkevitch Caroline Valetkevitch Fri Jun 19, 8:31 pm ET

NEW YORK (Reuters) – Without further signs of life in the lackluster economy or hints from the Federal Reserve the outlook is improving, stocks’ three-month rally may run into more obstacles next week.

Investors will assess data on new and existing home sales that could point to whether the battered housing sector has bottomed. They will also keep an eye out for profit forecasts or warnings as the second quarter draws to a close.

“The kamikazes who ran the market up three months ago have now paused … I’m in a situation where I say, ‘prove it to me.’ I want to see a trend where it really is a little bit better,” said Cummins Catherwood, managing director at Boenning and Scattergood in West Conshohocken, Pennsylvania.

All three major U.S. stock indexes ended the week lower, with weaker-than-expected regional manufacturing data on Monday giving the week a negative tone from the start. The Dow Jones industrial average (.DJI) fell 3 percent, while the Standard & Poor’s 500 (.SPX) index lost 2.7 percent and the Nasdaq (.IXIC) dropped 1.7 percent. 

Housing Recovery Moving ‘Distressingly Slow’    By: Reuters | 19 Jun 2009 | 11:07 AM ET

A “distressingly slow” U.S. housing recovery, with inflation-adjusted home values expected to decline over the next five years, makes it unlikely that housing wealth will drive consumer spending in the next decade, a Reuters/University of Michigan survey found.

(The smart investment is in “Inflation Protected Securities” or “IPS”  not realestate.  The next wave of foreclosures will invlove a group of individuals who have “played by the rules” and have now been impacted by the growing depression and have lost their jobs or face reduced income for the 1st time in their lifes. The wave of foreclosures after this group will involve individuals currently being given “no down payment” mortgages (or mortgages involing up to a $15,000 Taxpayer paid, Government “gifted” downpayment) with Governmentally surpressed adjustbale rates. Within 24 months, as the rates reset, the majority of these loans will default, creating an additional wave of foreclosures).

Consumers are apt to maintain their renewed emphasis on savings and paring debt, Richard Curtin, director of the survey, said in a June home price update Friday.

Housing wealth changes have a lagged impact on spending, and the influence of declines seen in 2008 will depress growth in consumer spending in 2009 and 2010, the survey said.

“To be sure, refinancing has reduced the burden of mortgage payments, giving consumers more discretionary income, but the refinancing impact on spending will fade as mortgage rates increase,” Curtin said. “Moreover, conventional refinancing is largely limited to consumers whose home is worth about 20 percent more than their current outstanding mortgage.”

The pool of those homeowners is fast shrinking with each month that home prices sink. On average, home prices nationally have slumped by more than 32 percent from mid-2006 highs, based on Standard & Poor’s/Case-Shiller indexes.

Sixty percent of homeowners reported home price declines in the second quarter Reuters/University of Michigan surveys. The share of those reporting losses was greatest in the West, at 77 percent, and least in the South, at 51 percent.

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