The following is an excerpt from the June 28, 2013 blog for Decision Point subscribers.
I watch the news as a part of my work, and lately I have been seeing a deluge of stories, reported by smiling, happy people, about how wonderful the housing market is. That alone makes me think that the housing market is about to top.
I'm a "glass-half-empty" kind of guy, so I have always been skeptical about the housing recovery (recently described in a headline as "The Greatest Economic Story in the World"), but I think it is just another case of cheap (free?) money distorting a market. Well, the cheap money days are over, as mortgage rates are soaring. This link has a good rate chart that shows that since the first of May the 30-year fixed rate has increased by 20%, and the 15-year fixed is up 37%! Lenders are not waiting for the Fed.
The chart below of the DJUS Home Construction Index is fairly typical of housing sector charts -- a mighty collapse from the 2005 top, a double bottom, then a strong advance out of the base. However, the rising trend line drawn from the 2011 low was violated this month, and the Price Momentum Oscillator (PMO) turned downward.
Conclusion:
Technical indicators tell us that the Home Construction Index has entered a correction phase. Pending Fed tightening and rising mortgage rates confirm the top we see on the chart.
(Hear more: Rick Sharga: We Are Nowhere Near a Real Estate Bubble)
Technical analysis is a windsock, not a crystal ball.
