Stocks traded flat this morning after starting off the week on a positive note in the session prior. It’s clear that bulls are still in control of the market.
But how much longer will that be the case?
Bearish data hit investors today when the Case-Shiller indices were released, revealing that US home prices erupted once again. The 20-City Composite Home Price Index jumped 19.08% year-over-year (YoY) in June, exceeding May’s 17.14% YoY rise in the process. The index is now climbing at its fastest pace ever recorded, even surpassing the housing bubble of 2005-2006.
This shouldn’t come as too much of a surprise, however, given Monday’s pending home sales report which showed that pending home sales fell month-over-month in both June and July. Analysts pointed to surging home values as the primary cause for the pending sales slump.
And prices are spiraling out of control in some cities more than others. Phoenix, AZ homes, for example, spiked by almost 30% in June, beating the Fed’s inflation target of 2.0% by almost 15 times.
Outside of America’s top 20 largest cities, home prices still grew 18.61% YoY nationally, notching another record high.
“June 2021 is the third consecutive month in which the growth rate of housing prices set a record,” explained Craig J. Lazzara, Managing Director and Global Head of Index Investment Strategy at S&P DJI.
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“June’s 18.6% price gain for the National Composite is the highest reading in more than 30 years of S&P CoreLogic Case-Shiller data,” he continued.
“This month, Boston joined Charlotte, Cleveland, Dallas, Denver, and Seattle in recording their all-time highest 12-month gains. Price gains in all 20 cities were in the top quartile of historical performance.”
Zillow Group economist Matthew Speakman commented on the unprecedented boom in home values as well.
“The forces that have propelled home price growth to new highs over the past year remain in place and are offering little evidence of abating,” Speakman said in a statement.
“The number of available homes for sale remains historically small, particularly given the elevated demand for housing.”
Even though Fed Chairman Jerome Powell won’t admit it, surging home prices are being watched by the Fed as a potential taper trigger. Several non-voting Fed members have mentioned “excesses” in the housing market in the past. That’s led some analysts to think it will force the Fed to start tapering in September, well ahead of Wall Street’s assumed taper timeline.
“The Fed is going to have to taper sooner rather than later,” said Ironsides Macroeconomics’ Barry Knapp in an interview Monday morning.
“I think they’ll do it in September after a stronger than expected employment report. And, again, another round of very strong house prices […] which is one of the real reasons they should be tapering.”
The recent developments in the housing market should have weighed heavily on investors. Instead, stocks refused to fall this morning.
But that could all change upon the release of the August jobs report on Friday. If it’s “too good,” Powell may have yet another reason to accelerate the taper. Wall Street assumes the market will get a taper warning (not an actual taper) when the September FOMC meeting wraps on the 22nd.
After the latest batch of housing data, though, Powell may be looking at things a little differently. A stellar August jobs report might just be the final “nail in the coffin” for the bull market.
However, until stocks start to seriously tumble, there’s no reason for traders to jump ship just yet. The market’s had plenty of excuses to sell off this year. Ultimately, it came roaring back from each small dip, hitting new highs in the trading sessions that followed.
Don’t be surprised to see a repeat performance this month, and maybe sooner than most investors expect.