US Housing Market—Fully Recovered

The S&P500 lost about 1.1% last week, as geo-political tensions rose in several spots around the world, especially North Korea where the US government has essentially pre-announced that it is likely to take military action. And keep in mind that North Korea has nuclear weapons. So not only did US equities give back some recent gains, but two classic safe-haven assets rose in price:  US Treasuries and gold. S&P volatility, as would be expected, not only increased, but it increased to the highest levels since the November presidential election. US equity trading volume was on the light side, but that’s in part due to the holiday-shortened week.

In US macro news, the results were disappointing. Small business optimism fell off a bit. Producer prices—both core and headline came in well below expectations (not something one would expect in a healthy and growing economy). Retail sales missed badly. Both the headline and ex-autos figure came in well below expectations. And consumer prices (also headline and core) registered far lower readings than economists had predicted. Only consumer sentiment, a fuzzy measure at best, beat expectations.

On the charts, the recent pullback in the S&P500 has now resulted in some technical damage. For example, the 50 day moving average has failed to hold. Last week, prices not only dipped below this average,  but closed the week well below it. That said, prices are still well above the 200 day moving average and the 200 day is clearly sloping upwards….both of these are still bullish, over the medium to longer term.

Finally, it’s interesting to note that US single family housing prices have not only recouped all the losses that were incurred near the lows of 2012, but in many of the major (20 cities measured by Case-Shiller) metro areas in the US, prices have now set new record highs. The question obviously is this—will these price gains be durable, unlike the gains in the prior market peak, circa 2005-2006? While nobody knows for sure, given the fact that the Fed’s ultra-easy monetary policy was primarily responsible for the recent run up in prices, and given that the Fed has now implemented a new policy to reverse much of the old ultra-easy measures, there’s a very good chance that US housing prices will give back at least some of their recent gains.

The crash in US housing between 2006-2012 proves that prices can—and do—move downward as well as upward.


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