2025-12-30 13:21:00
If not for the AI boom and massive government deficits, I suspect the broader US economy would look more like the housing industry.
The massive hangover from ultra-low rates during covid continued this year, despite early hope for optimism. The home builders’ ETF ($XHB) tells the story. It was rocked early in the year along with the Liberation Day trade, then attempted a reversal from April only to stumble again in the fourth quarter, finishing the year fractionally lower.
XHB home builder ETF
The chart itself flatters the performance of overall home builders, as high-end builders did better due to divergence in the US economy. The latest index of home builder sentiment from the NHB was at 39, which is near rock bottom levels.
At various points in the year hopes for lower rates helped home-builder sentiment but we’re now in some kind of trough of disillusionment. There are a couple of rate cuts fully priced in for next year but there is fear that any cuts won’t work their way to the long end of the curve, and may even steepen it.
US home buyers generally use 30-year fixed mortgages so the Fed has little power to control that with overnight rates, and even in Trump’s most-dovish dreams, the potential for further QE to drive down long-term yields is remote. That means there are few levers to pull to offer a strong boost to housing.
Yesterday, there was some stronger economic data on the housing front. Pending home sales rose 3.3% compared to 1.0% expected. There is pent-up demand building and at some point that could be released. Ironically, it could come when consumers start to sense higher rates coming.
Today we get another housing indicator on the economic calendar with the CaseShiller house price index and the price numbers from the FHA (the US regulator). Those are expected up 1.2% y/y and 1.7% y/y, respectively.
Other data on the US economic calendar today includes the Dallas Fed services sector survey, which always has some interesting commentary, and the FOMC minutes from the Dec 9-10 meeting. The later could be a market mover if it highlights a timeline for further rate cuts (or not). It was one of the more-contentious decisions of the past decade.
Aside from the data, look for the ebb and flow to dominate markets today as it’s the last full trading day of the year. S&P 500 futures are currently flat.
