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Housing Is Topping

  • Written by Syndicated Publisher No Comments Comments
    June 29, 2013

    I watch the news as a part of my work, and lately I have been seeing a deluge of stories, reported by smiling, happy people, about how wonderful the housing market is. That alone makes me think that the housing market is about to top.

    (This is an excerpt from recent blogs for Decision Point subscribers.)

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    I’m a “glass-half-empty” kind of guy, so I have always been skeptical about the housing recovery (recently described in a headline as “The Greatest Economic Story in the World”), but I think it is just another case of cheap (free?) money distorting a market. Well, the cheap money days are over, as mortgage rates are soaring. This link has a good rate chart that shows that since the first of May the 30-year fixed rate has increased by 20%, and the 15-year fixed is up 37%! Lenders are not waiting for the Fed.

    The chart below of the DJUS Home Construction Index is fairly typical of housing sector charts — a mighty collapse from the 2005 top, a double bottom, then a strong advance out of the base. However, the rising trend line drawn from the 2011 low was violated this month, and the Price Momentum Oscillator (PMO) turned downward.

    Screen shot 2013-06-27 at 11.25.58 AM

    Conclusion: Technical indicators tell us that the Home Construction Index has entered a correction phase. Pending Fed tightening and rising mortgage rates confirm the top we see on the chart.

    Images: Flickr (licence attribution)

    About The Author

    Carl SwenlinCarl Swenlin is a self-taught technical analyst, who has been involved in market analysis since 1981. A pioneer in the creation of online technical resources, he is president and founder of DecisionPoint.com, a premier technical analysis website specializing in stock market indicators, charting, and focused research reports. Mr. Swenlin is a Member of the Market Technicians Association.