Since the start of 2022, the huge downturn in the markets has been plastered all over the news…

The shot of a troubled trader rubbing their brow and each market collapse reported like it’s a sport.

It’s a daily dose set on a rinse-and-repeat cycle.

But while huge falls have captured all the headlines, other important data has passed by almost unnoticed.

Over the next months, this unperceived data will have a major influence on the economy and our wealth. So today, I’m going to pull back the curtain…

Property Continues to Slow

One of the major causes of the 2022 sell-off in stocks has been rising interest rates.

So far, we’ve seen three rate hikes with the prospect of even more jumbo increases like the 0.75% we saw earlier this month.

And with the Nasdaq already down over 30% this year, I don’t see the Fed taking their foot off the accelerator.

This week, Federal Reserve Chair Jerome Powell reiterated the board’s commitment to get inflation back down to 2%.

Good luck with that.

With a Federal Funds target rate at 1.5-1.75% – and official inflation data pushing nearly 9% – there will be plenty of rate rises to come.

If the Fed can achieve their desired “soft landing” against this backdrop, then it’s going to pull off a modern-day miracle.

While the prospect of these rate rises has seen the value of high-growth stocks crumble, it has also had a direct and tangible effect on property.

As mortgage rates rise (with 30-year rates now pushing 6% and higher), parts of the property market slow down dramatically.

Around a month ago, I wrote about existing home sales. After peaking in January, there has since been a rapid decline.

Take a look at the chart below…

United States Existing Home Sales

Source: TradingEconomics.com, National Assoc. of Realtors

Annualized home sales of 5.41 million as of May put the numbers back around pre-pandemic levels. And that’s not even counting the rate rises to come.

But that’s what happens when you have the double-whammy of high inflation and rising interest rates.

While prices for food, gas, and used cars are rising, higher interest rates are taking an even bigger chunk out of people’s pockets. Something’s got to give.

In another piece of property data released last week, we saw that new home construction is cooling. Building permits came in well below consensus forecasts, dropping 7% on an annualized basis.

You need confidence in your job and future to commit to such a large-scale purchase. And with interest rates moving higher, that data tells you confidence is starting to wane.

Unfortunately, the banks are already seeing this slowing demand unfold right in front of them. This week, JPMorgan Chase laid off hundreds of workers from their mortgage business.

And that’s on top of the thousands of layoffs from other banks recently, as they also begin to deal with a slowing property market.

While the public is worried about the stock market, the banks know we have bigger troubles ahead with a shrinking demand for new mortgages. This data could foresee a chain reaction of similar bearish events.

When we see panic in the markets, it’s easy to get lost in the headlines. But if we want to stay a step ahead of volatility, we must look beyond the noise to get a better picture of how the real economy is performing.

Regards,

Larry Benedict
Editor, Trading With Larry Benedict

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