Monday, December 18, 2023

SPX and a Random Thought about Real Estate

So I looked through my chartbook, but there's just not a lot to say about a trending market, except that it's still trending.  As the old saying goes, "The trend is your friend -- 'til the end when it bends."  Accordingly, there's not much to add to recent updates, except to note that SPX is getting close to the zone of the old red trend line:

I also wanted to share an interesting thought (not a prediction, just a random speculation) regarding the housing market.  As we all know, just as I predicted back in April 2022, the housing market hasn't fallen, despite rising interest rates.  My speculation at the time was that rising rates would cause people to cling to their 3% mortgages, so while demand would fall from rising rates, supply would also fall, which would tend to counteract falling demand.  That's exactly what happened... then I had another thought a few months ago that went something like this:
  • When rates finally do start to fall, people who have felt "trapped" in their mortgages may finally rush their homes to market.
  • This will, of course, increase inventory.
  • Depending on how much pent-up supply lies in the wings, there's a chance that falling rates could again trigger the inverse of what everyone is expecting:  Instead of rising prices, it's not outside the realm of possibility that lower rates could lead to a supply glut, as "trapped" would-be sellers finally see a way out -- which would then trigger falling prices.
Again, that's not a prediction, because there's no reliable way to measure how many people will list their homes in a falling rate environment -- so I don't have enough data to make that prediction.  But I think it's at least a possibility that the housing market once again does the exact opposite of what "everyone" is expecting.  If it were to play out this way, I still wouldn't expect a housing "crash," but a significant rise in supply brought on by lower rates could at least turn this into a buyer's market.  Again, not a prediction, just a random thought.

Not much to add beyond that.  Trade safe.

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