Is the housing market under stress?
This chart shows
XHB
the Homebuilders ETF vs
USCSHPIYY
the Case Shiller House Price Index YoY...
What do you notice?
Well, one data set is lagged by the other.
Housebuilders are far more sensitive and closer to the macroeconomic realities and housing supply and demand than the general population on aggregate (because it's their business to be, obviously).
Currently, the Housebuilders ETF is down, whilst house prices remain slightly elevated, albeit with cracks appearing as interest rates have risen, leading to mortgage rates to also increase.
You can make some parallels with Dow Theory here...
'The Dow theory is a financial theory that says the market is in an upward trend if one of its averages (i.e. industrials or transportation) advances above a previous important high and is accompanied or followed by a similar advance in the other average.'
Material costs are through the roof, and with headline inflation at multi decade highs, it's likely demand in the economy will subside as well.
See, housebuilders only build when they predict the market will sustain an upward trajectory, and one could argue with XHB ticking lower, there is fear this upward trajectory has ended.
Today we saw durable goods orders decline 2.1%, pointing to a consumer struggling with making bigger purchases amidst this inflationary backdrop.
What might this spell for house prices further down the line as the Fed decreases its holdings of mortgage backed securities, de-liquifying this part of the market?
Well, it's likely we'll face repercussions in credit as spreads widen and the wealth effect dissipates.
As I've mentioned in a previous idea (
), this is a more key factor as credit spreads are really the elements which show which way we're headed.
I think it's time to argue that housing is facing some serious downside potential.
XHB
the Homebuilders ETF vs
USCSHPIYY
the Case Shiller House Price Index YoY... What do you notice?
Well, one data set is lagged by the other.
Housebuilders are far more sensitive and closer to the macroeconomic realities and housing supply and demand than the general population on aggregate (because it's their business to be, obviously).
Currently, the Housebuilders ETF is down, whilst house prices remain slightly elevated, albeit with cracks appearing as interest rates have risen, leading to mortgage rates to also increase.
You can make some parallels with Dow Theory here...
'The Dow theory is a financial theory that says the market is in an upward trend if one of its averages (i.e. industrials or transportation) advances above a previous important high and is accompanied or followed by a similar advance in the other average.'
Material costs are through the roof, and with headline inflation at multi decade highs, it's likely demand in the economy will subside as well.
See, housebuilders only build when they predict the market will sustain an upward trajectory, and one could argue with XHB ticking lower, there is fear this upward trajectory has ended.
Today we saw durable goods orders decline 2.1%, pointing to a consumer struggling with making bigger purchases amidst this inflationary backdrop.
What might this spell for house prices further down the line as the Fed decreases its holdings of mortgage backed securities, de-liquifying this part of the market?
Well, it's likely we'll face repercussions in credit as spreads widen and the wealth effect dissipates.
As I've mentioned in a previous idea (
I think it's time to argue that housing is facing some serious downside potential.
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