Is the Stock Market a Window into Confidence in Housing?

Posted by Jim DeBellis on June 30th, 2011

The stock market enjoyed a little spike on Tuesday after a new report showed home prices rising in April, which was the first rise in nine months.  One just has to wonder if the stock market is so ravenous for good news that it’s grasping at straws and barking at shadows, or if it really sees some kind of recovery coming.

The report comes from the S&P Case-Shiller home price index, which made headlines with news of a double-dip recession in housing market prices last month, so it’s difficult to imagine that this 0.7 percent price increase is much more than a statistical blip.  Even a stone tumbling down a cliff gets a fortuitous upward bounce every now and again.  Still, it is interesting to look at some of the stocks gaining ground lately.

Home Depot and Caterpillar both gained, which is a good sign.  Investing in construction and home improvement indicates that some are confident that housing may be ready to improve.  Let’s see…what else… Oh, Exxon Mobile and Chevron went up because of a 2.5 percent increase in the price of oil.  That’s not so good, and doesn’t come from confidence in housing.  Nike went up a big 10 percent, so maybe people are ready to spend money for expensive athletic shoes and break out of their depressing funk. Ooops…guess not.  Nike says the gain was due to big increases in sales in China.

The dollar got weaker against the euro, the Japanese yen, the Brazilian real and the British pound.  Maybe some of the increase in home prices was due to a recent spurt of foreign investors from those same foreign places buying up houses in Miami and other cities after they bought a load of cheap dollars.  That Case-Shiller index is based on 20 cities, so a little skewing in those cities could throw off the real national average a bit.

I’m not trying to be a booger in the punch bowl.  I’m just saying that there is more than one way to read the tea leaves.  The stock market isn’t exactly a trustworthy benchmark in telling us which way the wind is blowing in housing or anything else these days.  After all, it’s been going sideways in a stagnant pool of broken dreams for more than a decade itself.  In the end, it won’t be an index that tells us that the market has hit a firm bottom and is ready to rise; it will be a mood, a real change in the course of foreclosures and the economy, and perhaps even an election.