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I Have A Headache

January 29, 2024 | Posted in: Wealth Strategies

I have written many times about what I call “noise” which is the constant assault on our senses by blaring headlines, the prognostications of pundits, and other sources of information overload. While it generally affects our mental health, noise can result in impulsive and non-productive investment decisions. To illustrate this problem, here are three headlines that I drew from this week’s media:

2023 was the slowest year for home sales in nearly 30 years as mortgage rates frustrated buyers Associated Press
Housing Market Data is Warning Sign for Americans: Economist Peter Schiff Newsweek
US New-Home Sales Exceed Forecast on Drop-in Mortgage Rates Bloomberg

So, is the housing market healthy or not? Are interest rates deterring buyers or not? What does all of this mean for the economy and the stock market? In fact, there is an explanation for these seemingly contradictory headlines, but there is no denying that anyone who casually reads them is likely to be confused.

Briefly, sales of existing homes have been weak because homeowners are hesitant to move since it would likely involve foregoing their attractive current mortgage interest rate. To wit, the 30 year mortgage rate is currently 6.7% as compared to 2.8% in January of 2020. In contrast, new home sales are considered a timelier gauge of the housing market, and the 1% decline in rates from the peak of 7.6% in October is enough to stimulate sales which rose almost 8% in December. In addition to declining rates, the National Association of Homebuilders reports that about two thirds of builders are offering special incentives to drive buyer interest.
The moral of the story is that one should not react to these kinds of headlines because there frequently is underlying complexity that is not readily apparent.