This is “Anything but Positive for Housing”

Has the rise in mortgage rates only begun?

By Elliott Wave International

A tug-of-war between bullish and bearish forces appears to be playing out in the U.S. housing market.

On the one hand, some areas of the country are still experiencing record-high home prices as buyers outnumber sellers.

On the other, the number of home sellers who dropped their asking price spiked to a six-month high of 15% during a four-week period ending on May 1, according to a Redfin report released on May 6.

Another development that falls in the bearish category for residential real estate is rising mortgage rates.

Here’s what the April Elliott Wave Financial Forecast, a monthly publication which provides analysis of major U.S. financial markets, noted as it showed this chart:

The rising interest-rate story is anything but positive for housing. This chart shows a surge in the cost of financing a home. Over the last 15 months, the Freddie Mac 30-year mortgage rate rose from a record low 2.65% to 4.67%, a 76% increase. … As the chart title suggests, mortgage rates have much higher to go.

In fact, about a month after that commentary published, a May 9 Fox Business news item said:

The 30-year fixed-rate mortgage surged to 5.27% annual percentage rate (APR) for the week ending May 5, 2022, according to Freddie Mac. …

That’s the highest 30-year fixed mortgage rate since 2009.

As the Campbell Real Estate Timing Letter noted (May 15):

In April 2022, a $1,000 principal and interest mortgage payment currently affords a loan that is 30% smaller than at the beginning of 2021.

Now, let’s mention another bearish factor for U.S. housing — and that’s the action of the stock market.

You see, the stock and real estate markets tend to be highly correlated. They may not be in perfect synchronization, but generally, they both tend to rise and fall together.

And, as you probably know, the Dow Industrials and S&P 500 index have been in a downtrend since January.

Now is the time to pay close attention to the Elliott wave structure of the stock market, which, as mentioned, can help you get a handle on the housing market.

If you need a refresher on Elliott wave analysis, or are entirely new to the topic, you are encouraged to read Frost & Prechter’s Wall Street classic, Elliott Wave Principle: Key to Market Behavior. Here’s a quote from the book:

In the 1930s, Ralph Nelson Elliott discovered that stock market prices trend and reverse in recognizable patterns. The patterns he discerned are repetitive in form but not necessarily in time or amplitude. Elliott isolated five such patterns, or “waves,” that recur in market price data. He named, defined and illustrated these patterns and their variations. He then described how they link together to form larger versions of themselves, how they in turn link to form the same patterns of the next larger size, and so on, producing a structured progression. He called this phenomenon The Wave Principle.

Although it is the best forecasting tool in existence, the Wave Principle is not primarily a forecasting tool; it is a detailed description of how markets behave. Nevertheless, that description does impart an immense amount of knowledge about the market’s position within the behavioral continuum and therefore about its probable ensuing path. The primary value of the Wave Principle is that it provides a context for market analysis.

You can learn more about the Wave Principle by reading the entire online version of the book for free!

All that’s required for free access is a Club EWI membership.

Club EWI is the world’s largest Elliott wave educational community and is free to join.

You may be interested in knowing that Club EWI members enjoy complimentary access to a wealth of Elliott wave resources on investing and trading with zero obligations.

Just follow this link to get started: Elliott Wave Principle: Key to Market Behavior — free, unlimited and instant access.