Stuck holding a down-trending stock and want to make yourself feel better? Then just check out what’s happening in the housing market. The charts look much worse there!
My MoneyShow Chart of the Day shows the pending home sales index. Compiled by the National Association of Realtors, it tracks contract signings for purchases of “used” homes.
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Pending Home Sales Index
Source: Investing.com
You can see that it sank again in July to 71.2. Not only was that down 2.3% from June, but it’s also tied for the second-lowest since 2001. In fact, it’s lower than the levels we saw in the depths of the Great Financial Crisis of 2007-2009...when the mortgage and housing markets collapsed.
What’s the problem? Start with mortgage rates. Long-term bond yields are hitting fresh multi-year and multi-DECADE highs in developed economies, the US included. That’s driving up the cost of financing. Home prices haven’t fallen enough to compensate – so many markets are “stuck.”
Meanwhile, new home builders are rolling out price reductions and incentives to drive volume. That’s capturing market share from existing home sellers in some markets.
It all adds up to a particularly glum situation for the housing market overall — and investors are taking notice. The iShares US Home Construction ETF (ITB) is down 5.8% in the last 12 months, while the State Street SPDR S&P Homebuilders ETF (XHB) is off 11.5%. Both are woefully underperforming the SPDR S&P 500 ETF (SPY), which is up 19.4% during the same timeframe.
Individual stocks are faring even worse. Rocket Companies Inc. (RKT), the mortgage lender, is down 21% in the last year. Zillow Group Inc. (ZG), the real estate listings firm, is off a whopping 55.9%.
Bottom line? Contrarian investing hasn’t worked here for a while – and likely won’t unless the bond market throws the housing market a life ring. When that happens is anyone's guess.
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