Housing Index Breaks Out Before the Fed
Housing stocks have chopped in a very tight range since October, but now they’re trying to break out.
This weekly chart highlights the ascending triangle on the Philadelphia Housing Sector Index. Notice how HGX made consistently higher lows while staying under 405 – that is, until last Wednesday, January 20.
Interestingly, the news that day was bearish: NAHB’s homebuilding index unexpectedly fell as builders complained about land shortages and high lumber prices. The next day, investors got a very powerful report from the Commerce Department as starts and building permits spiked to 14-year highs. Both beat estimates by healthy margins.
It appears that any lingering effects of the 2008 subprime crash are thoroughly in the rearview mirror. We now seem to face just the opposite: Instead of a speculative, debt-fueled bubble, we have a legitimate supply/demand story with low inventories and armies of millennials wanting suburban homes.
Despite that improvement, HGX has barely moved for years. It’s only 15 percent above the previous peak in January 2018, while the S&P 500 has gained 34 percent over the same period. Mortgage rates have also fallen more than a full percentage point over the same time span.
Speaking of interest rates, there’s a Fed meeting on Wednesday. Jerome Powell has recently floated the idea of capping long-term borrowing costs. Repeating that idea could give a direct boost to housing and help HGX move past these old levels to join the broader market running to new highs.
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This weekly chart highlights the ascending triangle on the Philadelphia Housing Sector Index. Notice how HGX made consistently higher lows while staying under 405 – that is, until last Wednesday, January 20.
Interestingly, the news that day was bearish: NAHB’s homebuilding index unexpectedly fell as builders complained about land shortages and high lumber prices. The next day, investors got a very powerful report from the Commerce Department as starts and building permits spiked to 14-year highs. Both beat estimates by healthy margins.
It appears that any lingering effects of the 2008 subprime crash are thoroughly in the rearview mirror. We now seem to face just the opposite: Instead of a speculative, debt-fueled bubble, we have a legitimate supply/demand story with low inventories and armies of millennials wanting suburban homes.
Despite that improvement, HGX has barely moved for years. It’s only 15 percent above the previous peak in January 2018, while the S&P 500 has gained 34 percent over the same period. Mortgage rates have also fallen more than a full percentage point over the same time span.
Speaking of interest rates, there’s a Fed meeting on Wednesday. Jerome Powell has recently floated the idea of capping long-term borrowing costs. Repeating that idea could give a direct boost to housing and help HGX move past these old levels to join the broader market running to new highs.
TradeStation is a pioneer in the trading industry, providing access to stocks, options, futures and cryptocurrencies. See our Overview for more.
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