Soaring mortgage rates have put a serious dent in global home prices in the past year. But already, it looks like prices have stabilized. That could be good news for the economy – and for your portfolio.
Housing is a major player in the economy: not just because important sectors like construction and financial services are strongly tied to it, but also because when prices go up, homeowners feel richer and spend more, boosting the overall economy in the process. So by watching what happens with house prices, you can get a pretty good idea of where the economy might go next.
For the first time in a little while, the housing market is flashing some positivity. Despite an astonishingly aggressive run of interest rate hikes, home prices seem to be stabilizing at a much higher level – and much more rapidly – than they have in the past.
Goldman Sachs points to a trio of reasons for this surprising steadiness. First, the housing supply is still playing hard to get, with too few houses on the market. Second, a post-Covid immigration surge has kept demand on the strong side. And, third, pandemic-induced savings left households in a fairly comfy financial position. So they’re able to front the necessary down-payment, and handle the heftier interest payments on the loan.
The stabilization – and potential recovery – in house prices could have big implications for your portfolio: if the housing market is truly recovering, then the economy may soon follow. And if we manage to dodge a hard landing, the risk assets that have been under pressure could just take off.
That being said, there are still good reasons to be cautious. For one, this could just be a short breather, and the full effects of all those rate hikes might still be on their way to the housing market. For another, a swift bounce-back in shelter prices just might prompt those central banks to jack up rates again.
But overall, there’s a bit of good news here: the economy is indeed more resilient than feared, and there are signs of a turnaround. And when the facts change, so should our view. And while it’s not enough to turn me into a bull, I’ll certainly be monitoring this sector closely.
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