Investors May Be Facing Another Headwind

Wednesday, 16 Jun 2010 | 5:53 PM ET

With BP, financial regulation and Europe the last thing this market needs is a new headwind. But one may be brewing, nonetheless.

And it comes in the form of housing.

The latest results from the National Association of Home Builders showed its housing market index - a widely used barometer of sentiment - fell to 17 in June. That's a 5 point decline and the lowest level since March.

The results underscore a growing belief that home sales will slow in the second half of this year, largely because tax credits that stimulated recent buying have now expired.

Adding to the headwinds, are high unemployment and tight mortgage lending.

If those predictions prove to be accurate, the resulting slowdown could generate a significant drag on the economy. Each new home built creates the equivalent of three jobs for a year and generates about $90,000 in taxes paid to local and federal authorities.

Also, new home construction ripples across multiple industries, from makers of faucets and dishwasher to lumber yards.

I'd now watch for the new homes sales figures at the end of the month, explains Deutsche Bank analyst Nishu Sood. It's really how many homes that people are buying that drives the economy.

Housing Dip Ahead?
Consumers dive after housing starts plummet 10%. Insight with Nishu Sood, Deutsche Bank housing analyst.

And he thinks demand likely dropped; in other words prepare for a negative surprise.

What’s the trade?

The only name in the space, I like is MDC and that's on a longer term basis, says Sood. But they're more of a land fund.

Find out what else Deutsche Bank analyst Nishu Sood told us about the future of the housing market. Watch the video now!

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