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Housing breadth is weak

February 16, 2014

One of my methods that I haven’t shown in a while is to look at breadth indicators and in particular, market wide breadth indicators. Breadth usually peaks before the indices peak, with a small number of large cap, fashionable stocks holding up the indices at the end of the bull market.

I’m going to apply that idea to a growing interest of mine – affordability of housing. It is probably the biggest disgrace of our country that young adults cannot afford to buy whilst homes sit empty and older adults block the building of new homes.

The latest Land Registry survey shows that prices continue to rise but take a look at the detail.

  • P4 – The England and Wales annual change has been below London since 2008, was negative for over a year and almost flat for another year
  • P5 – London has the highest annual increase, other areas with large populations are basically flat
  • P6 – Huge swathes of the country (yellow and light green) show minimal increases
  • P11 – 12 London boroughs had annual increases above 10%, nine of these were in the top 11 boroughs by price. The highest increases were focused on the most expensive boroughs
  • P13 – A small number of properties sell for the highest prices, yet attract huge media attention

Contrast this with 1993 – 2007 when prices rose nationwide. Weak breadth in the stock market – a small number of large, fashionable stocks holding up the market indices is a precursor to a bear market. I think it will be just the same in housing and probably in the next two years.

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