Does The US Housing Sector’s Decline Have Further To Run?

Published on

CMC Markets recently spoke with Michael Kramer, Mott Capital Management’s founder, and Christophe Barraud, chief economist and strategist at Market Securities, on the state of the US housing market.

A Turbulent Year For The US Housing Market

The US housing market has experienced a turbulent year to date. On average, interest rates for 30-year fixed mortgages exceeded 7% in October, with expectations that rates will remain high for the coming months. Additionally, the monthly mortgage payment for a typical existing family home with a 20% down payment has risen by over 50% year-on-year.

Get The Full Henry Singleton Series in PDF

Get the entire 4-part series on Henry Singleton in PDF. Save it to your desktop, read it on your tablet, or email to your colleagues

Q3 2022 hedge fund letters, conferences and more

“The latest data showed that existing home sales fell for an eighth straight month in September, hitting 4.71 million on a seasonally adjusted annual rate (SAAR) basis, the lowest since May 2020. The stretch of monthly declines was the longest since 2007,” Barraud says.

This hike, along with the rising cost of living and falling equity markets, has placed home ownership out of reach for many, especially first-time homebuyers who may now find it more challenging to save for a deposit. This in turn has weakened demand, forcing property prices lower.

A key measure of house prices in major US cities, the S&P CoreLogic Case-Shiller 20-City Composite, also fell by 1.3% in August, with all 20 cities reporting declines.

However, the consumer price index reading for October (which was published on 10 November) was weaker than expected, sending the entire market soaring, and taking the Philadelphia Stock Exchange Housing Sector Index [HGX] with it – an index that tracks housing development companies working directly in the US housing construction market.

“The index rose above its 200-day moving average for the first time since 18 January,” says Kramer.

“Although the HGX index has ticked higher recently, the performance of three of its constituent housing stocks suggest that the index could soon slide once more,” Kramer adds. Those stock being KB Home [KBH], PulteGroup [PHM] and Weyerhaeuser [WY].

Monetary policy and inflation over the next six to 12 months will largely dictate the direction of the US housing sector.

“If inflation remains high and the job market remains strong, and the Fed keeps interest rates high, these factors will weigh heavily on the housing market, implying more pain for the sector,” concludes Kramer.

For those who want to speculate on whether housing stock values will fall, and yields will rise off the back of this volatility in the US housing market, spread betting can be an effective way to trade on stocks, industry sectors, and bonds, without holding them outright. Learn more about spread betting.