26 Feb Housing Stumbles
There were many reports on the strength of the U.S. Housing Market this morning, with the consensus showing growth, but just not at the same pace as we have grown accustomed to the past several years. The reports are also covering winter months, including December, which are always on the low side. Even if we are heading into a slower market and recession, I believe the housing market will remain somewhat strong up until the point that it isn’t. If you look back on 2006, the makings of a recession were well in play, with many indicators pointing towards a slowdown coming. That didn’t stop eager homebuyers from buying up houses at inflated prices. Since most people make decisions based upon how they feel and the economy is performing currently, they ignore signs of a pending slowdown. Also, since no one can accurately predict at what point a recession will hit, people don’t want to miss out on what is available now. I think we will see the same thing happen the next recession go around. As a result, I anticipate a strong buying season just around the corner.
Fed Chairman Jerome Powell is speaking to the Senate today. Although the talk just started, he has already implied that he is willing to alter the plans to reduce the Fed’s balance sheet if the stock market falls. This piece of news is like providing a safety cushion to stock investors. With the implied bail out from the Fed as a backup, investors will be willing to take on additional risk. This statement from Chairman Powell came at a timely moment, as stocks have recovered about 75% of their losses from late 2018. This extra boost could propel stocks towards all-time high levels in the weeks to come. However, keep in mind that the higher stock prices go, the more they will fall when stocks eventually tumble. It’s a risky market and is overdue for a meaningful longer-term decline.
Unless bonds have the strength to break above the ceiling of resistance, we will maintain a locking bias.