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Macro View

More Evidence of Pressure on Housing

August 28, 2013

The slowdown in housing due to higher mortgage rates is becoming more evident in the data for that market. This comes during a time when the Fed is making a crucial decision about tapering quantitative easing, which is causing market uncertainty to rise further.

Global CIO Commentary by Scott Minerd

Economic data continues to confirm that housing is the key pillar supporting continued U.S. economic expansion, generating 40 percent of second quarter growth. Concerns, therefore, about the effects of higher mortgage rates, up by over 100 basis points since May 1, 2013, are justifiable. Recent data releases have been mixed and much housing data lags by several months.

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U.S. home prices could appreciate 30-40 percent over the next 3-5 years

Two weeks ago, housing starts data appeared positive, ticking up to 896,000 from 846,000, with the biggest contributor being multi-family housing. But last Friday, new home sales came in at their lowest level in nine months, down 13.4 percent from June. New home sales are booked when a contract is signed, a key difference from existing home sales, which are booked months later when the deal closes. As such, new home sales are the most current indicator of housing activity. This makes the recent collapse of new home sales exceptionally disturbing. All told, there has been a 20.7 percent decline in new home sales in June and July. We would view any other business that experienced a 20 percent decline in activity over a two month period as in a highly difficult position. Putting all of this together, there is strong evidence that the economy is eroding below the surface. Importantly, this comes at a time when the U.S. Federal Reserve is under increasing scrutiny over whether it will maintain its apparent commitment to tapering its bond-buying after the Federal Open Market Committee’s September 19 meeting. My view is that it appears likely that the Fed will continue signaling that a reduction of its bond purchases will happen, but that the central bank will probably start hinting about taper-lite, or a smaller reduction of its bond buying, than it signaled back in June. As all this plays out, it appears as though volatility will continue to rise as we head into September.

Further Confirmation of U.S. Housing Slowdown

Pending sales of U.S. homes declined 1.3 percent in July, the largest monthly fall this year, following a 0.4 percent decrease in June. Pending home sales tracks the number of signed real estate contracts for existing homes and serves as a leading indicator for existing home sales. Given the fall in pending home sales and the plunge in new home sales, we expect existing home sales to follow this declining pattern soon.



Source: Bloomberg, Guggenheim Investments. Data as of 7/31/2013.

Economic Data Releases

U.S. Housing Market Begins to Show Impact from Higher Mortgage Rates

Improvement in Europe Continues, China Manufacturing Bounces Back

Important Notices and Disclosures

This article is distributed for informational purposes only and should not be considered as investing advice or a recommendation of any particular security, strategy or investment product. This article contains opinions of the author but not necessarily those of Guggenheim Partners or its subsidiaries. The author’s opinions are subject to change without notice. Forward looking statements, estimates, and certain information contained herein are based upon proprietary and non-proprietary research and other sources. Information contained herein has been obtained from sources believed to be reliable, but are not assured as to accuracy. No part of this article may be reproduced in any form, or referred to in any other publication, without express written permission of Guggenheim Partners, LLC. ©2014, Guggenheim Partners. Past performance is not indicative of future results. There is neither representation nor warranty as to the current accuracy of, nor liability for, decisions based on such information.

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