When I say it’s that time of year, I’m not talking about the change of weather, I’m not pining for eggnog, and I’m certainly not looking forward to TSA pat-downs.
No -this is the time of year when Wall Street feels compelled to step up to the plate and make some projections beyond next Friday’s closing prices. It’s the time of year when analysts go way out on a limb and give us their views on how the markets will perform for the entire year. Hopefully a) they will do so before (not after) heading off to their Christmas parties, and b) they will share their thinking process.
I can’t comment on the first, but I’ve always noted that Wall Street saves some of it’s best graphs to describe their longer-term views. I hope to share a couple of those over the next few weeks, but with the caveat that, as always, I only use their graphs to prompt discussion. Please refer to the firms that authored the graphs for their original thoughts and work. The analysts deserve your support.
Citi took the home price issue down to the most elemental of issues -that all markets, all prices, are just about supply and demand. While many firms have focused on stated inventory and shadow inventory, Citi tries to highlight factors on the demand side.
This graph, compared with another in their weekly report that shows shrinking household formation over the last few years, illustrates the point that while affordability might be low, there are fewer people looking to buy.
While the decline in the share of home-ownership has primarily been described in turns of the ease of access to “affordability products”, that has since been reversed, the Citi graph makes the point that people may have changed their mind on what constitutes the American Dream.
The new 2011 American Dream may be a rental unit with the flexibility of moving on to wherever job growth first appears (and it seems from their graph, a car to get you there). The new Dream may be young couples, who as one recent news-story highlighted in a decline in the rate of marriage of 20-somethings, may view both marriage and home ownership as staid, dated forms of commitment. The new Dream (or nightmare for parents) may be that college students rebound into their parents’ (now relatively attractive) empty nest while they re-think their choice of major.
So, those looking on only one side of the equation may miss what Citibank has touted, either increased supply OR decreased demand will undermine prices.