The housing market has slipped into worrying territory, Housing Market Concerns: US housing permits and starts have fallen to their lowest levels since 2019, signaling potential economic slowdown. As the construction sector bucks the trend of risk asset purchases, parallels to 2007 and 2018 suggest the housing market could be a leading indicator of future Fed policy and market shifts. Explore the implications for equities, commodities, and the dollar.
The housing market has slipped into worrying territory
Economic data from the US in recent weeks has reduced the risk of recession and encouraged
the purchase of risk assets, but the construction sector is bucking the trend.
Building permits fell 4% in July to 1.396 million, the lowest level since July 2019, excluding
the dip at the start of the pandemic. Housing starts fell even faster in July, dropping 6% from
the previous month to 1.24 million, also the same level as five years ago.
Five years ago, the Fed cut interest rates three times—in July, September, and October—to
combat the economy's cyclical slowdown. At that time, the rate cuts were accompanied by a
strengthening dollar and weeks of weakness in the S&P500 early in the cycle.
Similarly, the Fed cut rates in 2007 when housing permits and new mortgages were also
falling to lower levels than they are now.
Switch to FXPRO today and trade financial markets
If the housing market again acts as a leading indicator of the US business cycle, as it did in
2007 and again in late 2018, the start of a cycle of policy easing in response to economic
weakness will support bears in equity and commodity markets and help the dollar recover
from multi-month lows. The opposite scenario, with the dollar weakening for several months
after the start of the policy easing cycle, was seen in 2007. However, markets and
policymakers seem to have taught us that the longer the gap between economic cycles, the
more brutal the "synchronisation" will be.
