The housing market is hanging on by a thread. The thread that is holding it up? Super low interest rates. This is keeping the real estate market floating but significant weakness in high end housing spells trouble. While many areas across the United States are showing increases in housing prices, this is mostly in middle to low end housing. Once you move north of $1+ million, demand has cratered. Why? The upper income buyers have too many questions about the future of housing in relation to the domestic and global economy. In many areas, housing has jumped dramatically from the 2010-12 lows, some places it is approaching the highs from 2007. The wealthy tend to be more housing savvy in regards to finding a good deal. They are also the buyers who use all cash, meaning they are less likely to care about interest rates being a historic lows. The high end real estate buyers are more likely to follow the global news and realize Europe is a mess, Brexit may have a long lasting impact and the United States election in November could have major consequences. Canadian buyers have also left the high end United States markets because of the collapse in oil from over $100 per barrel. While it has recovered somewhat, they are not yet inching back into the market.

Ultimately, high end real estate weakness may be a signal of a downturn in all of housing. Smart money is usually the first to leave the market. The scariest of all is what will happen if interest rates rise even a tiny bit. Look for a major slow down to spread from $1+ million housing into all of housing.

By Pro-Trader

Markus Teller