The U.S. housing market is back on ice...
This trend is nothing new. Housing activity has slowed to a crawl in recent years. The toughest pill to swallow was when the Federal Reserve began hiking interest rates... which caused mortgage rates to spike as well.
Higher rates mean lower housing affordability. And when fewer folks can afford to buy, fewer homes sell.
The slowdown seemed like it was nearing an end last fall. But now, the freeze is back. In fact, by one measure, the housing market is now in the worst spot we've seen in recorded history.
Let me explain...
The housing freeze showed some signs of thawing last year. Mortgage rates were dropping. Last fall, they neared 6% for the first time in more than a year and a half... But then, they bounced higher again.
Earlier this year, mortgage rates topped 7%. And as we've seen, that level crushes housing affordability... and pushes buyers out of the market.
This exodus is showing up now in pending home sales. This measure tracks the number of homes that are under contract but haven't yet sold. It isn't a complete look at the market. But it does give an early indication of future home-sales data.
Pending home sales recently hit the lowest level since the data begins. Take a look...
After a crash in 2022, this measure has been stuck at historically low levels. It has hit several new all-time lows in recent years... But the January reading was a major drop from the month before – and another new low.
We can draw two conclusions from this setup...
First, this new low probably won't ease home prices one bit. Housing activity has been in a depression for years... But prices haven't budged. In fact, they've kept rising. And I don't expect that to change unless we get a major recession.
Second, the housing freeze is clearly back. Falling mortgage rates nearly unfroze the market last year. But now that they've risen, housing is on ice again.
That won't last forever. And given how extreme the slowdown has been, the boom to come will likely be a big one. But clearly, we're not there just yet.
The good news is, the situation has been bad for a while... yet the overall economy survived it just fine. I expect that will continue. And since the market can't get much worse, the smart bet in the long term is that it has nowhere to go but up.
Mortgage rates are the key to unlocking the next housing-activity boom. If rates fall below 6%, we should see buying pick up. So if you're worried about housing, that's what we want to watch in the months ahead.
Good investing,
Brett Eversole
Further Reading
"The real economy isn't doing well," Mike DiBiase writes. The Federal Reserve has lowered interest rates – but bond investors still expect bad news, by one measure. And many reliable recession indicators have flashed major warning signals recently... Learn more here.
"A high 10-year Treasury rate makes it more difficult for Americans to buy homes," Sean Michael Cummings says. After focusing more on the stock market during his first term, President Donald Trump is shifting his attention to this key metric. And that means investors may need to change their strategy... Read more here.
