Housing Headache

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Housing starts were down, existing home sales were down, and new home sales were down. Housing and automobiles are two areas in particular that have been under stress. Automakers are facing tariff headwinds and their earnings are under pressure. Homebuilder earnings, on the other hand, are very strong. Nonetheless, the housing market has been showing cracks all year, even before interest rates jumped. Supply has not been able to keep up with demand. As a result, choices are scant and prices consistently have pushed upward, and are now on average higher than the previous high in 2006.

Housing starts have been hovering around 1.2 million, compared to 2.3 million new homes built in 2006. The S&P Case Shiller index has shown an average price appreciation of 6.5% this year, on the heels of 5.9% appreciation in 2017. Potential buyers have been increasingly reluctant to jump in and now that interest rates are rising, the paltry, overpriced inventory looks even less appetizing.

Housing is not poised for a crash, but it is not spurring GDP growth either. The malaise in housing may pressure the Federal Reserve to reconsider its continual upward path of interest rates. Unrelated to White House comments, the lack of a credible inflation threat and the deterioration in housing are valid reasons for the Fed to pause.

Please watch housing statistics on page 66 and 67 of the Global Perspectives Book.

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