Recession - 23.6% Chance Within Next Year

Finally, the housing market has begun to recover in the beginning of 2019 because price growth slowed and interest rates have fallen. To be clear, this housing recovery is still uncertain, but it is a green shoot.

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Recession - MBA Applications Weaken

MBA mortgage applications composite index for the week of February 1st fell 2.5% week over week after falling 3% in the previous week. The purchase index fell 5% after falling 2% in the previous week. Refinance index was up 0.3% after falling 6%. Unadjusted purchase applications were down 2% year over year. The average interest rate on 30 year fixed mortgages fell 7 basis points to 4.69% which is the lowest rate since April 2018. 

Last week included MLK day so the results may have been altered. This latest week didn’t include a holiday so it’s more likely to be accurate. It signals demand started to fall off after spiking earlier in the year.

According to Realtor.com, in 39 out of the largest 50 housing markets, the percentage of housing price cuts increased in January. Las Vegas saw the largest jump, at 16%. 

That’s interesting coming from one of the hottest housing markets. San Jose price cuts were up 9%, Seattle’s were up 8%, Orlando’s were up 6%, and Phoenix’s were up 5%. These price cuts explain the increased demand in January.

Recession - Conclusion

Some realtors acted surprised by the increased home sales growth in January. It’s like they figured the cycle was over. 

Real wage growth is strong and job creation is strong, so when prices get cut and interest rates fall, demand will increase. This is just like how retail investors thought the cycle was over in December. 

The cycle didn’t end because the Fed became more dovish and optimism about a potential trade deal increased.

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