When home prices stop going down, the worst of the credit crisis will have ended as banks can confidently quantify their exposure, investors can feel comfortable with taking on certain risk, many homeowners will stop the drowning on their mortgage, home buyers won’t have lower prices to wait for and the important wealth effect can stabilize. Home prices rose m/o/m in May for the first time since July ’06 and is expected to rise again m/o/m in June according to today’s S&P/CaseShiller 20 city home price index. The y/o/y drop is expected to be 16.4%, the slowest pace of decline since July ’08. However, because the prime area of housing is now under growing stress, price declines in this area will in my opinion reverse the temporary stabilization signs we’re seeing now in the aggregate. The FHFA price index is also out and has shown more modest price declines. Consumer confidence is out too. Chinese stocks broke its 3 day winning streak in response to yesterday’s comments from Premier Wen basically saying the recovery won’t all be smooth sailing. The rest of Asia followed.
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