Housing

House prices are falling. That house prices have spent the past few decades going up, latterly as Central Banks ladled out the ZIRP punch bowl, should not be forgotten. For now, though, they are falling. Every housing cycle ultimately comes down to mortgage rates; and mortgage rates have just exploded higher leaving those coming to the end of boom-time deals, a little sweaty in the lower back. Housing matters as it’s a leading indicator of the broader economy and what has happened to housing, will likely happen to pretty much everything else next year. There are, as ever, plenty of moving parts namely where the Federal Funds Rate will eventually settle. Friday saw a couple of Regional Fed Presidents out talking about the need to go a bit steadier on the recent full throttle ‘up-and-at-em’ approach to raising rates. All the front-loading done so far needs time to bed in. That said, Thomas Barkin whispered a higher end point might still be necessary. In short, they don’t know. Either way, mortgage rates tend to continue to drift higher well beyond the peak in any rate hikes so one can assume, from current prickly levels, they are going higher. Analysts talk openly that today’s mortgage rates already point to a very low reading in the key homebuilder sentiment survey, the NAHB Index – an index that has fallen more YTD than in any year since its inception in 1985 – and it could go lower still. Dress it all up with a pretty pink bow and the conclusion is that the coming recession could well be ‘epic’. A recession is largely consensual, the depth is not. Saddle up tight. And buy some gold.