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Housing Market Is Topping

ByCarl Swenlin
Published 06/30/2013, 01:17 AM
Updated 07/09/2023, 06:31 AM
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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.
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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.

by Carl Swenlin

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