Thursday, October 05, 2006

Liz Ann Sonders on MoneyMasters

My MoneyMasters interview with Liz Ann Sonders is now available for viewing. Liz Ann is the Chief Investment Strategist at Charles Schwab & Co. Because she has a tendency to be bullish, it is worth paying attention to why she is now bearish.

She is particularly worried about the housing market. She wrote an interesting market outlook piece for Schwab recently saying the current housing downturn is unique because it isn't being driven by falling incomes or rising unemployment. Instead, speculation is coming out of the market. As a result, the downturn could be more severe than average. Because she believes the housing downturn could negatively impact stocks, she is recommending a marginal decrease in equity exposure.

Housing experts often talk about affordability. The National Association of Realtors has a widely followed Affordability Index. This index considers median prices, mortgage interest rates, monthly principal and interest payments, and income. Except for a pop in August, this index has primarily been on a downward slide, which means home ownership is becoming less affordable.

Interestingly, the index does not consider property insurance and taxes. Yet in some states, property taxes account for a major portion of the homeowner's monthly payment. And in many areas, property taxes are the fastest rising cost of home ownership. Just imagine how much more rapidly the NAR's Affordabilty Index would be dropping if it included property taxes among its components.