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Sunday, June 30, 2013


Housing Is Topping 
by Carl Swenlin

I watch the news as a part of my work, and lately I have been seeing a deluge of stories, reported by smiling, happy people, about how wonderful the housing market is. That alone makes me think that the housing market is about to top. 

I'm a "glass-half-empty" kind of guy, so I have always been skeptical about the housing recovery (recently described in a headline as "The Greatest Economic Story in the World"), but I think it is just another case of cheap (free?) money distorting a market. Well, the cheap money days are over, as mortgage rates are soaring. This link has a good rate chart that shows that since the first of May the 30-year fixed rate has increased by 20%, and the 15-year fixed is up 37%! Lenders are not waiting for the Fed.

The chart below of the DJUS Home Construction Index is fairly typical of housing sector charts -- a mighty collapse from the 2005 top, a double bottom, then a strong advance out of the base. However, the rising trend line drawn from the 2011 low was violated this month, and the Price Momentum Oscillator (PMO) turned downward.

Screen shot 2013-06-27 at 11.25.58 AM
Conclusion: Technical indicators tell us that the Home Construction Index has entered a correction phase. Pending Fed tightening and rising mortgage rates confirm the top we see on the chart.

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