Monday, August 22, 2005

This is from the Dow Jones newswire

Edited by John Shipman

MARKET TALK can be found using N/DJMT

3:43 (Dow Jones) Merrill economist David Rosenberg cites a simple reason for why he's convinced that the housing market is due for a price correction. "The answer comes down to one metric: housing affordability and its impact on demand," he says. Affordability for first-time buyers has deteriorated to levels last seen in 1989, when mortgage rates were at 10%, he notes. Back then, in the 3Q of '89, bids ultimately dried up and "new home sales plunged 20% in the ensuing year as demand responded to the affordability erosion," Rosenberg says. Consumer cyclicals and financials "were the worst two performing sectors in the year after the 1989 housing bubble burst (which, by the way, also featured a surge in energy prices and a Fed tightening cycle)," he adds. (JHS)


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