Problems in the broader U.S. economy have grave implications for stock and equity investors, making it prudent to consider negative developments in industries such as the housing market. While some feel that the term "U.S. housing market" is wasted air due to the localized nature of real estate – and there is justification for this belief – the truth of the matter is that such analysis is a useful tool when it comes to risk evaluation in both microeconomic and macroeconomic climates. Put more simply – it's important to know what's going on in the real economy if you want to be absolutely sure that your investments are sound.
A report in The Wall Street Journal shined some light on recent research from the National Association of Realtors, which has shown a precipitous drop in first-time homebuyer rates since the 2008 financial meltdown. Even before the housing boom, this demographic was responsible for roughly 40 percent of all purchases in U.S. real estate markets. Since then, however, this number has dwindled and reached a low of 29 percent as of June 2013. With the one-month lag involved in such studies, its possible that purchase rates will be even worse for July.
"First-time buyers are important to get the housing market to move to a new plateau," Steven Ricchiuto, the top economist at Mizuho Securities USA Inc, told the Journal in an interview. "Without them, you just get stuck at a marginal recovery environment."
The issue for investors is that such data draws a portrait of a restrained consumer population unable to stimulate the economy. Given the fast-moving pace of today's markets, this negative perception could sustain and create a drag effect on future growth. These conditions call into question whether or not investors are engaging in adequate financial risk management.
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Categories: Risk Management, Trading & Portfolio Strategies