Housing Market Index
As mentioned, the economy is heavily dependent on housing. As such I follow the housing market index. Currently, it's below 50 meaning the market is shrinking. I look for a crossover on the upside before investing in housing. Notice the similarity of this chart to the Inflation Indicator Countrywide Credit Purchase Volume %change over last year.
Mortgage Equity Withdrawl (MEW)
I found an interesting chart showing the importance of mortgage equity withdrawal to the economy since 2003. Before 2003, it had virtually no effect. The psychology of this market is to borrow against ever rising house prices. If house price appreciation stops, the MEW effect goes away. For the most part, mortgage equity withdrawal is not trapped in asset bubbles. Most MEW is spent on household renovations and furnishings with cars second.
The Bank of England actually tracks this every quarter. Most recent chart is from Q3'06.
See Mortgage Equity Withdrawal UK
As you can see, a rebound has occurred. Will that happen in US? Not until lending rebounds. In addition, lending is still rampant in UK and house prices rose 10% this year. US has less lending year over year and declining house prices.
The dynamics are different in the US at this time. House prices are falling so there's less borrowing against increasing equity.
Housing Starts
Housing starts show a precipitous drop. Look for this chart to turn around before economy has a chance to rebound.
MBA Mortgage Applications
Purchase applications are still running below last year's levels. This still indicates slowdown. Notice below how refinances have a small effect on the economy and no effect on house prices. As house prices accelerated through 2004-2005, refinancings fell and the economy/housing boomed.
