Drop in Sales Volume Signals House Price Falls

Posted on | August 30, 2010 | No Comments

After the steep house price decline in 2008, the UK residential property market recovered significantly for most of 2009 and during early 2010.  However over the last 6 months, the performance of the housing market has been mixed. The “recovery rally” appears to have run out of steam, with the rate of residential property price growth slowing significantly. Looking in to the future, will house prices stagnate, continue to rise slowly or are we in for a double dip in the housing market?

The monthly sales volume figures (property transactions) give us some clues as to the direction of the housing market. The graphs below, charted using data provided by the Land Registry web site, shows the average house price in England & Wales (left axis scale, red graph) and the number of houses sold (sales volume – right axis, green graph) on a monthly basis over the last 4 years.

Click on image to enlarge

Analysing this graph tells us that the trend in sales volume leads the trend in house prices by a few months.  Read more

CMI Consumer Demand Growth Index Drops Sharply

Posted on | August 23, 2010 | No Comments

The US based Consumer Metrics Institute (CMI) samples discretionary consumer purchase data as close to “real time” as possible, giving it an edge over many other indicators in predicting the direction of consumer spending and hence, US GDP.

In the past 5 years or so, the CMI’s 91-day Growth Index has shown remarkable correlation with GDP and has predicted the direction of GDP months in advance.

Source: Consumer Metrics Institute [Click image to view large original]

CMI’s 91-day Growth Index is currently showing a contraction of 5.25% and has been negative for 215 days. If this “leading” indicator proves to be anywhere near as accurate as in the past, then we are in for some nasty Q3 & Q4 US GDP figures, as consumers account for around 65% to 70% of  GDP. Read more

Economic Growth, Double Dip Recession or Worse?

Posted on | August 22, 2010 | No Comments

Two years after governments all over the world pumped billions in to stimulus spending, the world economy appears to be faltering on the brink of recovery. Events over the next few crucial months will indicate whether the major global economies rise out of the ashes of the 2008 financial crisis or sink into the abyss of a double dip recession. If things get worse, the possibility of Japanese style deflation or Zimbabwean style hyper-inflation (depending on which camp you are in) cannot be discounted.

Given the economic morass the world is in, there is potential for massive wealth destruction in the near future. The opposite is also true for those who see current market conditions as a good time for wealth creation.

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Its aim is to consolidate and comment on illuminating and forward-looking economic indicators from credible third party sources. The hope is that these timely pointers to future market direction will be useful in making informed investment decisions.

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