Wow, a parlor game...

A popular parlor game these days is trying to predict how the holiday real estate shopping season will fare. If sales rise from last year, that may bode well for the economy heading into 2010. If sales drop, well, that's not such a good sign. 

Like many things related to the real world of life and Wall Street investing, you could do exhaustive, detailed analysis to come up with a prediction, or, you could pick one indicator that has some historical significance and run with that. As it relates to predicting holiday sales, sales in general, it turns out that, "Christmas tree sales can be a good gage of the strength of the holiday-shopping season," according to The Wall Street Journal.

So far, this simple indicator looks positive. Christmas tree sales were up 6% the weekend after Thanksgiving and 3% the following weekend when compared to the year earlier period, according to ISI Group survey data as reported by the Journal. 

Helping to corroborate the Christmas tree indicator, the Commerce Department reported last Friday that retail sales rose 1.3% in November, which was double the rate expected by economists surveyed by Bloomberg. Consumers also seemed to be feeling a bit cheerier as the Reuters/University of Michigan preliminary index of consumer sentiment for December rose to 73.4 from 67.4 the month before, according to Bloomberg. 

The good news doesn't stop there. Credit Suisse and JPMorgan Chase & Co. both raised their fourth-quarter GDP forecast to a gain of 4.5% from the 3.5% pace projected at the start of the week.  To the stock market, all this positive news was apparently old news because for the week, the S&P 500 was unchanged. Chalk that one up to the "wisdom of crowds."

Notes: S&P 500, DJ Global ex US, Gold, DJ-UBS Commodity Index returns exclude reinvested dividends (gold does not pay a dividend) and the three-, five-, and 10-year returns are annualized; the DJ Equity All REIT TR Index does include reinvested dividends and the three-, five-, and 10-year returns are annualized; and the 10-year Treasury Note is simply the yield at the close of the day on each of the historical time periods.

Sources: Yahoo! Finance, Barron's, djindexes.com, London Bullion Market Association.

Past performance is no guarantee of future results.  It really has nothing to do with real estate sales.  But it makes me feel better.  Indices are unmanaged and cannot be invested into directly.  N/A means not applicable or not available.

DOES THE CHANGE IN THE VALUE OF YOUR ASSETS affect how much you spend? For years, economists have talked about the concept of the "wealth effect." Simply stated, the wealth effect suggests that consumer spending rises or falls based on changes in an individuals assets. For example, if an individuals assets such as their home or investments are rising, they may feel "richer" and be more inclined to spend money. The reverse would also be true according to the theory. But, is it really true?

Economists are split on the impact of the wealth effect on consumer spending. Some economists say the wealth effect from changes in housing prices is minimal, while others say it is significant. Some say the wealth effect from changes in housing prices is greater than the effect from changes in financial assets, while others say the reverse is true. Knowing how the wealth effect may or may not impact the economy is important because consumer spending accounts for about 70% of economic activity, according to The Wall Street Journal.

Analyzing household net worth data is one way to help determine the trend in asset levels. So, where does household net worth stand these days? 

In the third quarter, household net worth rose to $53.4 trillion. This represents a 5% increase compared to the second quarter, according to the Federal Reserve. On the bright side, this net worth number is up from the recent low of $48.5 trillion in the first quarter of 2009. By contrast, our net worth peaked at $64.5 trillion back in 2006. Not surprisingly, declines in housing prices and the stock market are two main culprits of our loss in wealth.

Depending on how the wealth effect plays out, this decline of $11 trillion in our collective net worth from the 2006 peak could impact future economic growth. The federal government is well aware of these numbers and that's one reason why they continue to look for ways to "stimulate" the economy.

I think the feds could do a lot more for homeowners, for real estate which would help the unemployment.  One would be to find better ways to prevent short sales, prevent foreclosures which are currently only push the home values down.  An abandoned property is not good for the neighborhood.  And think of all the lenders and staff, appraisers and staff, inspectors and staff, handymen and staffs, pest inspectors and staff, escrow officers and staff, attorneys and staff, contractors and staff, home depots, hardware stores, glass, flooring, roofing companies.   I mean the list is endless.  And all the feds need to do is get the banks to stop foreclosing.

Figure out what payment the homeowner can afford, have them start making monthly payments, add the late fees, loan shortages, processing fees, everything on to the back end of the loan, due when they either sell or if they stay in the home over the length of the loan.  Reset the interest rate to a fair percentage (fixed for 15 years).  The payments could be tiered to a repayment schedule.  I know, my approach is simple and it is not as easy as I have put here.  But there are other ways to slow this down and stop the free fall, unemployment to a degree and all the other bad things that are happening now.