The housing market has slipped into worrying territory
|Economic data from the US in recent weeks has reduced the risk of recession and encouraged the purchase of risk assets, but the construction sector is bucking the trend.
Building permits fell 4% in July to 1.396 million, the lowest level since July 2019, excluding the dip at the start of the pandemic. Housing starts fell even faster in July, dropping 6% from the previous month to 1.24 million, also the same level as five years ago.
Five years ago, the Fed cut interest rates three times—in July, September, and October—to combat the economy's cyclical slowdown. At that time, the rate cuts were accompanied by a strengthening dollar and weeks of weakness in the S&P500 early in the cycle.
Similarly, the Fed cut rates in 2007 when housing permits and new mortgages were also falling to lower levels than they are now.
If the housing market again acts as a leading indicator of the US business cycle, as it did in 2007 and again in late 2018, the start of a cycle of policy easing in response to economic weakness will support bears in equity and commodity markets and help the dollar recover from multi-month lows. The opposite scenario, with the dollar weakening for several months after the start of the policy easing cycle, was seen in 2007. However, markets and policymakers seem to have drawn the conclusion that the longer the gap between economic cycles, the more brutal the "synchronisation" will be.
Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers.