FEEDHere is a scary chart to consider. It plots the National Association of Home Builders’ Housing Market index - a monthly measure of builder confidence - against the Standard & Poor’s 500 stock market index, with a one-year lag. There has been a very close correlation between current builder confidence and future stock returns over the past ten years.
If the correlation holds true, there could be a rough road ahead for the stock market. Just don’t expect the bubble heads on CNBC to give you a heads up. As the DOW continues to make all-time highs, they continue to ignore any potential dangers spilling over from the real estate market. Their position is that the economy is resilient enough to withstand the real estate downturn, the auto slowdown and any other negative news. However, I find it hard to ignore all of the economic activity generated by home sales like new mortgages, realtor fees, outlays to painters and handymen, as well as the trips to Home Depot and Best Buy.
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