Something happened for the first time in a long time… Housing prices fell.
Not everywhere, just on the west coast. Seattle real estate dropped -1.6% and San Francisco homes dipped -0.3% in August, per the latest S&P/Case-Shiller report. Home prices were broadly flat nationwide during the month and are +6.0% higher compared to one year ago.
Here is a city-by-city look:
Despite the monthly loss, Seattle real estate has still appreciated +9.6% annually. Las Vegas remains atop all major cities, up +13.9% year-over-year, while San Francisco moved into the second spot (up +10.6%).
The annual growth rate has slowed just as I predicted a year ago or so. But growth is still growth, even if it is not the double-digit clip that most homeowners have come to expect over the past few years. I believe prices will slow a bit more, especially amid higher mortgage rates. I cannot speak to how loose or rigid the lending standards are compared to the past few years, but two factors working against housing demand are higher rates and a tepid stock market.
In The Market...
The S&P 500 gained +2.1% last week. Let's look under the hood:
Last week was constructive, though not great. Most sectors rallied, which boosted the S&P 500 back above its 200-day moving average. This is a positive, but only if it sticks. Soon after the S&P eclipsed its 200-day moving average on Wednesday, selling picked up and pushed prices back down a bit.
These types of stalled-rallies are often the result of what many call “overhead supply”, where investors who held throughout a period of losses are looking for the first opportunity to sell their holdings once prices rebound. This amount selling (“supply”) overwhelms the number of investors looking to buy, which results in falling prices.
During strong markets, investors look to buy when prices fall. During weak markets, investors look to sell when prices rise. Is this a “weak” market right now? Tough to say. I tend to think so, but the next few weeks should bring clarity.
I do think the market will eventually resolve itself by moving higher, but right now I think investors remain a little too complacent coming off the October decline. The bet would be that this complacency leads to additional losses, until stocks have reached a truer “bottom” than the one we saw a few weeks ago.
We added a S&P 500 index fund (SPYD) that is weighted in S&P stocks that pay the highest dividends among the index components. We also added to our Utilities fund position (FXU). Health Care remains the top sector that we are looking to add when appropriate.
In Our Portfolios...
Have a great week!
Brian E Betz, CFP®