When cracks appear in the rendering, the house doesn’t always win
- Home sales are falling faster than an auctioneer’s hammer whilst builder’s confidence plummets.
- With cracks appearing in the housing sector and consumer confidence on the ropes, the risk of a recession is rising.
- The Fed are treading on egg shells as they hike rates, as they’re aiming to tame hot inflation whilst targeting a soft landing in a low-growth environment.
- The Fed don’t announce policy U-turns, but we’ve already heard one member speak about a ‘pause’ in rate hikes this week.
- Cracks in the US economy are apparent and it might make the Fed reconsider their current hike trajectory.
Home sales are falling faster than an auctioneer’s hammer
Rising interests take have taken a chunk out of demand. And that’s no surprise with the average 30-year mortgage rate in the US quickly rising to 5.51% - its highest level of compounded debt since 2008. Whilst these rates are not high by historical standards, house prices are. Therefore, anyone who bought at the top may be forced to realise a capital loss if they have sell in a falling market. And, as is always the case, first time buyers are an easy take down with little to no equity in their new, overpriced homes.
Builder’s confidence is getting hammered
The NAHB housing index has plunged to a 23-month low, fallen for five consecutive months – and the -8 point drop in April was its worst since the pandemic. But, perhaps more worryingly, the ‘Traffic of prospective buyers’ has fallen to its lowest level since July 2019. And this is being reflected in building permits data.
New builds may have peaked
Building permits are seen as a leading economic indicator for the US. And there are now concerns that it topped in January, having declined steadily since and falling -3% in April. If builders aren’t building, it means lower demand for raw materials, construction workers, and home related retail sales. The silver lining is that its deflationary - but it won’t fix supply chain bottlenecks and remains a drag on growth.
Home construction stocks look set for another dip lower, given the backdrop of economic data - specifically in the housing sector - this past couple of weeks. The chart above shows the iShares Home Construction ETF relative to the S&P 500. And when you consider the S&P is close to a technical bear, and this sector looks like it may underperform, it underscores how badly investors are currently viewing this sector.
What are economic indicators?
The risks of a recession are rising
In a nutshell, demand for new homes, confidence in the building sector, and plans for new builds are all pointing lower in the US. And to add insult to injury, consumer confidence hit new lows and the Fed are being forced to rise to fight inflation, against a backdrop of weak growth – a scenario we warned about in November. And the Fed haven’t even began the serious phase of their supposed hikes just yet.
The case could be building for the Fed to backtrack
The Fed have to tame inflation, and they have said as much themselves. But to do so whilst leading indicators point lower, consumers are anything but confident and concerned over their finances, a storm could be brewing in the economy. The Fed are treading on egg shells as they hike rates, as they’re aiming to tame hot inflation whilst targeting a soft landing in a low-growth environment. We may get some indication of any such concerns when the Fed release their FOMC minutes later today.
But sometimes the better clues are found in public comments from Fed members, such as Bostic saying this week that they may need to take a pause [from hiking rates] in September. As a reminder, the Fed don’t announce policy U-turns, but will slowly drip feed a change in sentiment through such comments. So, if we see a growing chorus around a ‘pause’, we know the Fed are getting cold feet.
The US dollar continues to correct
Given the magnificent run on the dollar on expectations of several 50-bps hikes, it had already come into question as to whether they were fully priced in. Yet with other central banks turning increasingly hawkish and a slew of weak data form the US has weighed on the dollar as it has embarked upon a much-needed correction.
The US dollar index is currently lower for a second consecutive week, and the daily chart closed well beneath the 102.35 low. Should that level hold as resistance, we think a move down to 101 is on the cards, near the 50-day average. Even if we see an initial break above 102.35, we suspect a lower high can form below 103 before its next leg down to 101.
What are economic indicators?
This content will only appear on Forex websites!
How to trade with FOREX.com
Follow these easy steps to start trading with FOREX.com today:
- Open a Forex.com account, or log in if you’re already a customer.
- Search for the pair you want to trade in our award-winning platform.
- Choose your position and size, and your stop and limit levels.
- Place the trade.
The information on this web site is not targeted at the general public of any particular country. It is not intended for distribution to residents in any country where such distribution or use would contravene any local law or regulatory requirement. The information and opinions in this report are for general information use only and are not intended as an offer or solicitation with respect to the purchase or sale of any currency or CFD contract. All opinions and information contained in this report are subject to change without notice. This report has been prepared without regard to the specific investment objectives, financial situation and needs of any particular recipient. Any references to historical price movements or levels is informational based on our analysis and we do not represent or warranty that any such movements or levels are likely to reoccur in the future. While the information contained herein was obtained from sources believed to be reliable, author does not guarantee its accuracy or completeness, nor does author assume any liability for any direct, indirect or consequential loss that may result from the reliance by any person upon any such information or opinions.
Futures, Options on Futures, Foreign Exchange and other leveraged products involves significant risk of loss and is not suitable for all investors. Losses can exceed your deposits. Increasing leverage increases risk. Spot Gold and Silver contracts are not subject to regulation under the U.S. Commodity Exchange Act. Contracts for Difference (CFDs) are not available for US residents. Before deciding to trade forex, commodity futures, or digital assets, you should carefully consider your financial objectives, level of experience and risk appetite. Any opinions, news, research, analyses, prices or other information contained herein is intended as general information about the subject matter covered and is provided with the understanding that we do not provide any investment, legal, or tax advice. You should consult with appropriate counsel or other advisors on all investment, legal, or tax matters. References to FOREX.com or GAIN Capital refer to StoneX Group Inc. and its subsidiaries. Please read Characteristics and Risks of Standardized Options.
Please note that foreign exchange and other leveraged trading involves significant risk of loss. It is not suitable for all investors and you should make sure you understand the risks involved, seeking independent advice if necessary.
The products and services available to you at FOREX.com will depend on your location and on which of its regulated entities holds your account.
FOREX.com is a trading name of GAIN Global Markets Inc. which is authorized and regulated by the Cayman Islands Monetary Authority under the Securities Investment Business Law of the Cayman Islands (as revised) with License number 25033.
FOREX.com may, from time to time, offer payment processing services with respect to card deposits through StoneX Financial Ltd, Moor House First Floor, 120 London Wall, London, EC2Y 5ET.
GAIN Global Markets Inc. has its principal place of business at 30 Independence Blvd, Suite 300 (3rd floor), Warren, NJ 07059, USA., and is a wholly-owned subsidiary of StoneX Group Inc.
© FOREX.COM 2025