Another US Housing Market Bubble Blown

The S&P500 recovered some of it’s very modest losses last week by climbing about 0.7% on very light volume. Volatility as expected moved back down from the elevated levels reached earlier in August. Interestingly, the US dollar has lost all of its gains since the US presidential election last fall; at the same time the euro has recovered most of its losses in that same time period. As the US dollar has deteriorated, the price of gold in US dollars has crept up to its highest level in 2017.

US macro results took a turn for the worse last week. The Chicago Fed National Activity Index missed expectations…badly. The FHFA house price index also missed by a huge margin. New home sales came in well below expectations Existing home sales also missed. And while core durable goods orders just barely beat consensus estimates, the headline figure came in below expectations. So just like that, the US economic picture has taken another turn for the worse, while at the same time US stock market indices are still hovering not too far away from all time highs.

In terms of technical analysis, the S&P 500 closed below the 50 day moving average…despite last week’s gain. So on the daily charts, the recent weakening has not been reversed. That said, prices are still well above the 200 day moving average, and until that changes, the S&P500 should still be considered to be in a bullish cycle, where dips are to be bought. When the 200 day fails to hold…..and just as importantly, the 50 day crosses below the 200 day….then the bullish cycle that’s been in effect since early 2016 can be considered to be over.

Back in 2012, sometime in the late spring, the US housing market bottomed, and slowly but surely most major metropolitan areas in the US have been recovering ever since. And according to the most recent Case-Shiller housing price reports (released monthly), prices in the US have now not only recovered their losses from the 2012, but they’ve gone on to set new all-time highs. In a span of only five years, the US housing market has returned to and now even eclipsed the most recent bubble highs.

Setting aside the widely accepted rationale that easy money from the Fed has fueled this fast and large-scale recovery, the question most home owners should be asking is whether or not this is now a good time to sell and lock in, or monetize, the gains from today’s new bubble prices. Clearly the answer is yes—selling today is far more profitable than selling near the lows in 2012. But the problem is that unlike trading stocks or bonds or even commodities, trading houses is not something that most families can do very easily or quickly. And that means that even if an owner understands that selling today would be a good economic decisions, many of these same owners will not sell simply because they don’t treat their home investment the same way they treat their financial investments. And that means that almost all homeowners who benefited from today’s bubble prices will inevitably be vulnerable to future price declines.

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