The housing market, we think, is always worth paying attention to; a sentiment that is doubly true during periods of economic uncertainty. Our thinking on that front is straightforward—a house is the most significant asset most Americans own, and it is a levered asset, where most homeowners borrow a meaningful amount of money to purchase a home. When the housing market is humming along, typically the economy is too—think the mid-2000s. When the housing market is struggling, typically the economy is too—think the late-2000s.
We believe The Great Recession was so great because it was housing-led; not only did the value of most American’s primary asset decline in value significantly but most Americans were saddled with a mortgage greater than the house it financed (one reason, we think, lower interest rates did so little to stimulate the economy through the 2010s; millions of Americans were unable to refinance mortgages as they had no equity in their homes).
Well, last week was an interesting week for the housing market, as we learned mortgage applications declined 19% year on year, existing home sales fell 5.4% in June, and homebuilder sentiment dropped a stunning 12 points as measured by July’s NAHB Housing Market Index. Clearly, higher borrowing costs— the average rate on a 30-year mortgage is just shy of 6%—are having an impact on demand. That said, we learned last week that the median price of an existing home sold in June hit a record $416,000, that builder sentiment (as measured by the NAHB Housing Market Index) remains five points above the 50 threshold that is still considered positive, and there were 1.26 million homes for sale as of the end June, which, at the current sales pace, equates to an exceptionally low three-month supply. In fact, if there is one data point more than any other that has us not expecting a meaningful downturn in housing, it is supply. There are just 1.26 million homes for sale today; on the precipice of The Great Recession, there were 4.0 million homes for sale (see chart).
The views expressed are those of Brinker Capital and are not intended as investment advice or recommendation. For informational purposes only. Brinker Capital Investments, LLC, a registered investment advisor. 1309-BCI-7/25/2022