Wednesday, October 31, 2018

Housing has peaked*

*(unless the Fed lowers interest rates)

- by New Deal democrat

My comprehensive look at September housing data is up at Seeking Alpha. The downtrend in housing statistics has been sustained and severe enough for me to make the call that housing has peaked, by most measures, between last November and this past March.

This does not mean that I am calling for a recession at this time. But it does mean that this long leading indicator is now a firm negative. There are three constributing factors to this turn in the market:

1. Interest rates have risen (to roughly 5% for 30 year mortgages)
2. unlike 2014, when a similar but not quite so severe rise in interest rates only caused a temporary pasue in the market, house prices as a multiple of household income are at or near new peaks.
3. the capping of the Federal deduction for state and local taxes has really hit markets in California and the northeast megalopolis.

None of the three factors look likely to abate in the near future. Thus I expect the trend in housing to remain below the recent peaks.

What *is* a possibility (and for what it's worth I believe this plays a role in Bill McBride's belief that housing hasn't peaked yet) is that, if inflation remains subdued, the Fed could react to a softening economy next year by reversing course and lowering interest rates, thus breaking the downtrend.

In any event, as usual, heading on over to Seeking Alpha to read my long article should hopefully be informative for you, and it rewards me with a little $$$ for my efforts.