If you're looking to buy a home, you've missed the boat. Housing's outlook isn't so good at all now. The Federal Reserve hiked interest rates by 25 basis points Wednesday, which adds a significant headwind to a housing market that already has more headwinds than tailwinds.
There's been inflation across the economy, housing prices have been elevated, and now interest rates are rising.
Housing sales volumes have been way down this year, in part because the baby-boomer generation is holding onto its homes and not selling. Baby boomers currently hold the highest percentage of houses in the U.S., at more than 30%, a Deutsche Bank economist told me. In May, existing home sales actually decreased 2.5% year over year. Housing starts haven't been strong either. Meanwhile, housing prices have actually risen some because of the low supply. Home sale prices increased 6.9% year over year in May, according to the Federal Housing Agency.
Other economic data that has come out since mid-year could spell doom for the housing market. August's inflation reading was the highest since September 2008. The latest reading, in September, did come in lower than expectations, rising 2.7% year over year, but the broader inflationary picture has been strong. Plus, housing prices are already trending higher. Yes, wage growth has strengthened of late, with average hourly earnings rising 2.9% year over year, the fastest rate in nine years, but a little bit of wage growth isn't enough for people to start buying up homes, especially in this environment.
And now there's a rate hike, which is lifting mortgage rates. The 30-year mortgage rate is getting closer to 5% - it's at 4.75%, according to Wells Fargo.
From all indications, the economy is doing very well. Inflation may be somewhat reflective of strong demand in some sectors, and wage growth has been very good for retailers like Nordstrom Inc. (JWN - Get Report) and TJX Cos. (TJX - Get Report) Consumer discretionaries like Nike Inc. (NKE - Get Report) are also expected to do well.
But we're not talking about pocket spending. We're talking about big personal expenditures. Stay away from buying a house. It'll put a material dent in your cash position.
Side note: if you're looking for exposure to housing through the stock market, be wary. After the Fed hiked rates Wednesday, Toll Brothers Inc. (TOL - Get Report) , the luxury homebuilder, finished down 2.52%. Redfin Corp. (RDFN - Get Report) has declined almost 4% in the last five days. KBR Inc. (KBR - Get Report) , a construction company, fell more than 1% on Wednesday.
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