US housing data continues to soften, S&P500 hits resistance

High levels of inflation and rising interest rates continue to weigh on the outlook for the US housing sector, with building permits falling another -0.6% in June. Whilst not as dramatic as the -7% print in May, it’s worth noting that single units fell -8% and 2-4 unit permits fell -5.5%. With consumer confidence and business sentiment in the doldrums, I’m basically waiting for the lagging employment sector to tell us what we already know; the US is headed for a slowdown.

• Building permits declined -0.6% in June (-7.0% prior)
• Single-unit permits were -8% m/m
• 2-4 units fell permits fell -5.5% m/m
• 5+ units rose 13.1%

Builders confidence continues to crumble

On Monday the NAHB/Wells Fargo Housing Market Index (HMI) fell to a 2-year, 2-month low of 55.0. To underscore just how quickly sentiment is nosediving,  the index fell -17.9 points in July - its 4^th worst month-on-month change on record - and it was already at a 2-year low. This is an important metric to follow because if the experts of the trade have a grim outlook, they may be onto something. Also note that ‘traffic of prospective buyers’ fell to its lowest level since April 2020.

• Builders confidence in newly built single family homes fell for a seventh month, and traffic of prospective buyers fell to 37 – its worst level since April 2020.
• Housing start are going the wrong way of of the gate, having fallen -14.4 million in June during its worst moth since the pandemic.

What does this mean for the Fed?

The latest batch of housing data is unlikely to change the Fed’s decision to hike by 75-bp next week. But it will act as (a rather annoying) reminder that all is not well in the US economy, given the sector is under fire for the rates they are themselves hiking. Ultimately, the longer the housing outlook continues to deteriorate, the greater the odds of a hard landing.

As we head into Thursday, employment data and business sentiment are back in focus. We doubt the Philly Fed index will show any solid turnaround given the dire outlook from businesses in the prior read. But something to keep an eye on is if we do begin to see employment metrics (such as jobless claims on Thursday) nose at a notable pace.

S&P 500 daily chart:

The S&P 500 has been oscillating sideways since late June, although it remains in a downtrend on the daily chart. Yesterday’s bearish candle was part of a 2-bar bearish reversal (dark cloud cover), which could mark a swing high near the upper trendline. Even if prices break higher, I suspect the 3950 – 4000 zone could provide strong resistance. But until we see a break of yesterday’s high the bias is for a move lower towards 3650.

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