Why 2011 Won't be Much Better for the Housing Market

Home prices have now fallen farther from their peak than happened during the Great Depression.

Sorting through the news this morning, we detect a common thread: IOUs gone bad and the inevitable response – a search for tangible wealth.

Since 2006, the average home price has fallen 26%, according to Zillow.com. That’s a greater percentage than the 25.9% drop registered from the plunge that helped kick off the Great Depression from 1928-1933.

And for the record, home prices have now fallen for 53 straight months. They fell 0.78% in November, the fastest pace since February 2009.

Still, that trend remains in the works. Look for a 20% increase in the number of foreclosure filings this year, says RealtyTrac.

The real estate forecasting firm says 2.87 million homes got a notice of default, auction or repossession last year – up only 2% from 2009. The foreclosure pace slowed briefly during Q4 2010 following the “robo-signing” scandal.

But the pace is already picking up again: Foreclosures grew 4% between November and December. “There are 5 million seriously delinquent loans not yet in foreclosure,” says RealtyTrac’s Rick Sharga. “They’ve got to eventually get in the pipeline unless the homeowners cure the defaults.”

That ultimate in paper promises, the US dollar, is taking a severe hit today. The dollar index has tumbled to 79.1, its lowest level so far in 2011.

Ordinarily, this would put some wind in the sails of gold, but not today. The spot price sits at $1,384. No doubt this will give cheer to the “gold-is-a-bubble” crowd…but overnight Byron King sent us a compelling pie graph that tells us how gold still pales in comparison to other assets:

Gold vs. Financial Assets

That’s impressive enough… But when you look at it historically, it’s simply staggering. Here’s a chart sent our way by Gold Switzerland’s Egon von Greyerz, showing gold and gold stocks as a percentage of global assets:

Gold and Gold Mining Shares as a Percent of Global Assets

Dare we point out that all four of those larger bars happened to mark major stock market bottoms?

Addison Wiggin
for The Daily Reckoning