Mortgage rates are soaring and housing market conditions are deteriorating. Sentiment is sour in both the financial markets and the economy.
The Numbers: Expectations for home selling conditions are at a level that have been seen leading up to, through, and in the wake of the financial crisis. This isn’t an isolated report and its both sides of the market. Data from the University of Michigan shows that the fewest survey respondents since the early 1980’s see this as a good time to buy a house (and that was prior to the most recent spike in mortgage rates).
Why It Matters: Economic sentiment, whether on buying houses or CEO confidence, is usually self-fulfilling. This may seem to be at odds with the idea of using sentiment as a contrarian indicator, but it isn’t all that different. We can look at past sentiment extremes to gauge the possibility that moods have moved too far, but it takes bulls to have a bull market in the same way it takes optimism to have an economic expansion.
In this week’s Sentiment Report we take a closer look at the persistent pessimism that can be seen across the market. While the conditions might be ripe for a rally, the longer the bears have the upper hand, the more risk there is to stocks.
