Looking Back at September
Overall, the economy is doing well. There does seem to be one spot that we would like to focus on this month: The Housing Market.
Looking at the data on Housing for the month of September, it appears to be taking a different direction from the rest of the economy. One of the readings the indicate caution is the NAHB/Wells Fargo Housing Market Index (HMI). The latest reading in August was 67, but the high last December was 74. This is a survey of homebuilders and their confidence in the housing market. When this is down it usually means fewer builders are beginning new projects.
Home prices are still rising which could be of concern if they go too high and first-time home owners can’t afford to enter the market. Rising interest rates also affect the cost of the home loan for new and refinance loans.
Another influence on housing is the number of actual homes available.
According to NDR, as of mid-2018, there is a housing shortage of about 1.2 million units relative to longer-term trends. This shortage has existed since about 2013. The tepid level of construction has failed to make a dent in it.
Liz Ann Sonders, “With or Without You: Can the Economy Still Hum if Housing Falters?” September 24, 2018.
Looking Ahead to October
We are looking at the housing market and its effect on the overall economy.
Consumption spending on housing services averages roughly 12-13% of GDP (which includes gross rents and utilities paid by renters, as well as owners’ imputed rents and utility payments). Source: National Association of Home Builders
Housing is a large piece of our economy. As such, we feel that it will continue to grow for some time to come. We just need to keep a close eye on future reports. We are also looking at another potential influence on the market for the remainder of the year: Mutual Fund Managers.
Over 48% of US mutual funds close their books between late October and December. Managers sell stocks with large losses to avoid reporting them on their year-end report to shareholders. This causes downward pressure on stocks trading within their portfolio(s) that are at or near 52-week lows. Once the selling subsides, these stocks have historically experienced a price reversal.
When Funds Clear Out: A Fiscal Year-End Stock Screen
Thomas Smicklas, Seeking Alpha November 6, 2008.
We are keeping our eye on events that may influence the market, such as tariffs and short-term interest rate hikes, as well as the overall housing market and the activities of Mutual Fund Managers. As investors, not traders, we need to look further into the fall and the end of the year. We still believe that our allocations should tilt away from bonds and some emerging markets. We will continue to closely monitor economy developments, as well as global events that affect the market.