Although indicators have been mixed, one is especially important: mortgage applications. That data point alone is like a consumer "buy-or-sell" barometer. When mortgage rates spike higher or swoon lower, it's the mortgage applications number that tells us where the demand is.
When rates go higher, demand would normally drop. At times, the drop may mean very little. But when mortgage rates rip higher like they have now, by over 100 basis points, the market has spoken. Rates are too high, and few potential homeowners are chasing the ship, so to say, before rates go higher yet again, like many "experts" had previously thought.
So how does this affect automakers? Well, the boost in auto sales lagged the housing market, before really playing catch up in the spring of this year. I'd expect for it to be the same coming down -- assuming the housing market fails to regain its upward momentum.
Maybe investors will be ahead of the ball, sell too early, wonder why companies like
(GM) haven't gone down yet, and end up buying back their soon-to-go-down-again shares.
Perhaps, investors won't even tie the two sectors together and get completely blindsided by a huge sales miss or earnings whiff. After all, it will likely take a few quarters for the effects to be felt. I'm not bearish by any means, especially on autos. In fact, I just wrote about
why I like
Ford and am long.
But housing is the backbone of the economic recovery. Its spillover effect is enormous. It's not just a few corporations that do good and pay well. It's millions of sales people, construction workers, tradesmen, mortgage brokers and so on, who feel the wealth effect.
Without them, there's no consumer confidence. There's no household spending. And there aren't as many new F-150s to go around for all of the contractors who suddenly lost the work they have grown accustomed to over the past six to 12 months.
At the time of publication, the author was long shares of Ford.
-- Written by Bret Kenwell in Petoskey, Mich.