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Is it the end of the world as we know it? October 9, 2008

Posted by shaferfinancial in Uncategorized.
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As Wall Street melts down, the stock market drops precipitously,  businesses fail, banks fail, etc., I see and hear palpable panic from many of my friends and neighbors, I smile.  Because the historical evidence points out this can only mean one thing.  But first some charts, thanks to Calculated Risk. 

 

This chart shows that equity withdrawals from homes has essentially stopped.  Note, it doesn’t mean that there is no more home equity available, there is much left, only that people have stopped accessing it.  People accessed their equity for many reasons, some good (equity management and home improvement) and some bad (living expenses, purchasing consumer goods), but for now fear and common sense has taken over.

Housing starts are way down, close to where they were in 1991 the last major housing recession.  In other words, few builders are building homes now because the supply of homes is large.

The price to income ratio, which tells us how affordable homes are has dropped down to the 2003 range.  This means homes are now much more affordable to folks.

Finally, this 10 year chart for Vanguard’s S & P 500 Index mutual fund demonstrates things are never as bleak as you think they are.  $10,000 invested in this index fund 10 years ago is worth over $14,000 now.  When you stretch out your perspective it helps calms the nerves!

Now, the question is what do all these charts mean?  It means that we have gone through much correction, especially in the housing market.  Any logical view would say we are through the worst of it.

Is this what market traders call capitulation?  Not sure today, but having been through this before I know that things looks bleakest right before the sun comes up!  Don’t panic.  Don’t worry!

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Comments»

1. Is there an upside to the credit crunch? « BBC World Have Your Say - October 9, 2008

[…] financial crisis It’s been a miserable few weeks hasn’t it? The world as we know it is apparently collapsing… everyone seems to be worried. I haven’t slept that well myself. Here in the WHYS […]

2. Eric - October 24, 2008

Thanks for all the helpful content on insurance. Nice site….

3. jennevve - March 17, 2009

Hi everyone! 😀
I’m new to shaferfinancial.wordpress.com.
I hope I can be a regular here!


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