It is not decided whether the housing industry is a coincident indicator of economic activity or a leading indicator. Yet when the housing industry slows, it is not a good sign.
Sales of existing homes were flat in August as mortgage rates rose for the fourth week. Actually, homes sales in August were down 1.5% over the past 12 months.
Sales momentum is concentrated in homes worth more than $500,000. Sales of homes worth less than $250,000 – those homes affordable to the middle class – have tumbled. Actually, there is shortage of homes for sale at less than $250,000 because few members of the middle class are moving up to more expensive homes. Not a good sign.
Thirty-year mortgage rates last week averaged 4.65%, up from 3.83% last year. Some analysts attribute the increase to strong economic growth, but Fed’s interest rate manipulations cannot be ignored. The Fed Funds Rate, after being next to zero for ten years, is now pushing 2%, and two more rate hikes are expected this year.
Another part of the housing market is home construction, which – according to headlines – is booming. Digging a little deeper, it’s not so rosy.
In August, home construction grew at its fastest pace in seven months, up 9.2%. However, it was led by a 29.3% jump in apartment construction, a volatile segment that fell by 3.7% in July and 16.6% in June.
But the fly in the ointment is construction permits, which fell 5.7% in August after a rise of only 0.9% in July. Permit applications were down four of the last five months.
Another headwind facing the home construction industry is the price of lumber, much of which is imported from Canada and is now tariffed. Lumber prices are up about $7,000 a house since the start of 2017. While domestic lumber is not subject to tariffs, that does not keep domestic producers from raising prices.
With the President imposing tariffs on everything from washing machines and clothes dryers to furniture and carpet, the cost of buying a new home will become prohibitive for the middle class. Inflation, meaning higher prices, is imminent.
In fact, rising prices are already on us. Now is an excellent time to make sure that you have the right amount of gold and silver in your investment portfolio. They have always done well during inflationary periods and during economic crises such as the 2008 Great Recession.