Market Participant's Breached an Important Line for Housing Shares
- cornerstoneams
- Feb 25
- 5 min read
CAMS View from the Corner
February 25, 2025
In recent weeks stock market participants have been battling it out (think bulls vs. bears) in the housing market via their pricing of housing-related companies that are organized as publicly traded companies.
There is a line in the sand that has stood for nearly sixteen months, which has been broken in the previous several days. With this, for now at least, the bears have seized the upper hand and have successfully pushed prices through this important threshold.
Another way to say this is to offer that the bulls have thrown in the towel, for now at least, and have relinquished their previously defended line in the sand.
It is important to realize that pricing in any market, when charted, can at times offer important information. When collective market participants carve out a low point and in turn defend it by bidding up prices, we can ascertain they feel X price point offers attractive value.
With this, they step in and begin bidding prices higher off of said low point anytime it is reached. In chart analysis this is known as a “support line.”
When support lines are established, the expectation is that the line should hold as a low point in price. If the line is breached as the price moves below it, we know this offers an important behavioral change in its pricing from collective participants.
From this point, there is an endless stream of variables that we will cut off from as they move toward countless approaches toward positioning in deploying capital. That alone invites a book.
The intention of this edition is to draw awareness to the change in collective market participants’ view toward housing stocks via their pricing of the underlying shares.
The Dow Jones U.S. Home Construction Index is offering a change in pricing behavior that is worth noting. This index is displayed above, dating back five years for perspective. In addition, the above is a weekly chart, which means each week’s closing price is added to the line chart.
Weekly charts are more telling than daily charts in the sense that a weekly closing price is more important than a daily closing price. In addition, a weekly chart cuts out a lot of the noise depicted in daily charts.
In the above chart, we have a red circle at the top highlighting how this home construction index began showing challenges in its pricing trend in late summer, 2024. This led into a series of lower prices as late summer season turned into fall and then early winter.
As we moved toward late 2024 and early 2025, an important support line had been approached, which then turned into a bull/bear battle as to whether it would hold. Our black line denotes this important support line, which had been in play since late 2023.
Our short red arrow highlights the ultimate break in this important support line as collective market participants pushed the price below it for the first time since its inception in late 2023.
Additional Charting Lingo
Our black line above is no longer a support line but now will be looked at as a “resistance” line. When support fails, that level can be expected to act as a resistance point or as a ceiling if that elicits a better visual perspective.
In time, if this index is able to get back above the black line, it will be an important pricing tell from market participants. Until then and for now, we have clear evidence that participants are turning more negative relative to their outlook for the housing market generally and home construction companies specifically.
It is always important to keep in mind that participants are forward-looking in their pricing of assets, which is to say, they price assets today according to what they see downstream on the economic timeline. They are turning more negative via their pricing behavior as displayed above.
Kneejerk – It’s Interest Rates
If you have a knee-jerk thought that interest rates are the issue, we in turn point out that interest rates, via the Treasury bond market, have been rising and remaining elevated for the bulk of the previous five years. Mortgage rates, via the 15-Year Fixed Average, have been rising and remaining elevated since late 2021.
More specifically, in the previous two years, 15-Year fixed Average Mortgage rates have remained in an elevated range of 2%. With a touch of rounding, their high side has been 7% while the low side touched 5%. Currently, said rates are in the middle of the range, coming in at the 6% level.
In this time, collective stock market participants, on a general, albeit choppy trend basis, continued to push housing share prices higher.
As offered in our above chart, while mortgage rates are currently a full percent under their peak level of recent years, collective participants seem not to care via the change in pricing behavior they are displaying in the wake of their trading operations.
The observation point/question offers, Is this pointing to general downstream economic concerns?
We think that may be a bit of a stretch at this stage, but we remain hyper-vigilant with our in-house recession watch in light of the wealth of tributaries that backdrop brings when deploying investment capital.
Said differently, we are extremely open-minded to its potential, with the above behavior making a short but growing list of recession watch concerns.
To emphasize, this is not a prediction of an incoming recession, only a reflection of our diligence.
As offered, mortgage rates as well as general Treasury rates are off peak levels. In the case of the 10-Year Treasury note, it is approximately ½% off its recent peak, while 15-Year Mortgage rates are a full percent lower from their highest level in this cycle.
Just one scenario we are watching for relative to this edition’s topic (and through it a recession watch) is if we continue to see the above interest rates moving lower (think bond market participants pushing bond prices higher) and the above housing shares also move continually lower in price. That is, lower rates and lower share prices for housing related equities.
If this unfolds from here, the inter-market messaging (bond market pricing in conjunction with housing stock market pricing) would be offering increased recession concerns relative to our “heads on a swivel” recession watch approach.
We certainly are not there yet on the inter-market messaging, but we are curious if this edition’s storyline has begun to lean in that direction. That is a curiosity, not a prediction. For now we continue to watch the above as well as other indicators with diligence.
I wish you well…
Ken Reinhart
Director, Market Research & Portfolio Analysis
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