If not for the AI boom and massive government deficits, I suspect the broader US economy would look more like the housing industry.
The massive hangover from ultra-low rates during covid continued this year, despite early hope for optimism. The home builders’ ETF ($XHB) tells the story. It was rocked early in the year along with the Liberation Day trade, then attempted a reversal from April only to stumble again in the fourth quarter, finishing the year fractionally lower.
The chart itself flatters the performance of overall home builders, as high-end builders did better due to divergence in the US economy. There are a couple of rate cuts fully priced in for next year but there is fear that any cuts won’t work their way to the long end of the curve, and may even steepen it.
US home buyers generally use 30-year fixed mortgages so the Fed has little power to control that with overnight rates, and even in Trump’s most-dovish dreams, the potential for further QE to drive down long-term yields is remote. That means there are few levers to pull to offer a strong boost to housing.
Yesterday, there was some stronger economic data on the housing front. Pending home sales rose 3.3% compared to 1.0% expected. There is pent-up demand building and at some point that could be released. Ironically, it could come when consumers start to sense higher rates coming.
Today we get another housing indicator on the economic calendar with the CaseShiller house price index and the price numbers from the FHA (the US regulator). The later could be a market mover if it highlights a timeline for further rate cuts (or not). It was one of the more-contentious decisions of the past decade.
Aside from the data, look for the ebb and flow to dominate markets today as it’s the last full trading day of the year
