Where Are Home Prices Headed?

Where Are Housing Prices Headed?

Where Are Housing Prices Headed?

What We’re Watching This Week

  • Home prices. A residence represents a sizable portion of a homeowner’s total net worth—and we take this under serious consideration when we review your long-term financial plan. As such, we’re keeping an eye on home prices, as high interest rates (and subsequent increased borrowing costs) have been a headwind for the housing market. In fact, the national median price on previously owned homes rose just 1.3% in January from the same time last year—that’s the smallest annualized price gain since February 2012. But as you’ll see below, a recovery may be in the offing.
  • The service sector. Accounting for nearly 80% of U.S. GDP (gross domestic product), the service sector is a key indicator of the state of the economy. And tomorrow’s ISM Purchasing Managers Index reading will give us a sense of where the service sector stands. After ending December at 49.2, the index rose to 55.2 in January—anything above 50 indicates growth, below 50 signals contraction. The February data may clarify whether December’s low reading or January’s rebound was the anomaly.
  • Earnings reports. We’re in the home stretch of fourth-quarter earnings season. Retailers were in the spotlight again this week, with lackluster numbers from Target showing that inflation is curtailing consumer spending on discretionary purchases. Overall, earnings for the S&P 500 are tracking 4.9% lower than in Q4 2021.

Bonds: A Hint for the Housing Market

A leading indicator for the housing market is on the rise: Pending home sales were up 8% month over month in January. If you pay attention to bond prices (which we do), this may not be such a surprise. Here’s why.

For the last two years, housing activity has been driven by the bond market, specifically by rising yields and falling bond prices. In the chart below, you can see how the Pending Home Sales Index has followed bond prices lower—at least until last fall, when bond prices stopped sliding. Since October 2022, bond prices have risen while yields have fallen. Soon after this trend began, the Pending Home Sales Index reversed its downward march, and it’s been steadily rising since.

That may seem odd on the surface, but when you factor in the relationship between Federal Reserve policy, bond yields and mortgage rates, the pieces fall into place. Falling bond prices and higher interest rates mean that borrowing is more expensive, whether you’re a business or an individual…or someone buying a home. As bond prices fell, the average 30-year fixed-rate mortgage rose from generational lows of under 3% in 2020 to as high as 7% in fall 2022.  

Like a winter storm, February has brought a chill to the bond market. Bond prices have dropped more than 2% (and mortgage rates have ticked up from 6.1% at the beginning of February to 6.5% this week). Is this a small hiccup or the start of a new downtrend? The future direction of interest rates (and bond prices) is unknown, but we can be confident that pending home sales, and the housing market, will follow them up or down.

Where are home prices headed?
Note: Chart shows level of the Pending Home Sales Index and the price of the Bloomberg U.S. Treasury 2–10 Year Index from Jul. 31, 2020, through Feb. 28, 2023. Source: FactSet.

Tax and Estate Update: Plan Now, Profit Later

This year’s tax season will be history in no time, but it pays to plan now for next year—and the year after that. We’ve mentioned changes ushered in by Secure Act 2.0 and shared how we can work with you to update your financial plan. For instance, required minimum distributions (RMDs) are being pushed out to age 73 in 2023, offering you more time to consider a Roth conversion. And new rules for 529 plan rollovers provide an additional path for wealth accumulation.

Looking ahead, a slew of tax cuts are set to expire at the end of 2025—and we have planning solutions to mitigate your exposure if Congress fails to act. Your adviser will work with you to address your specific situation ahead of time, but for now, here are some of the areas we’ll be focusing on for our clients:

  1. Protecting your estate tax exemption. ​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​The unified tax credit could be cut in half in a few years. One way for high-net-worth couples to shelter their wealth is with a spousal limited access trust (SLAT). At its most basic, a SLAT can move assets outside of an estate now, locking in the current estate tax exemption. A critical component is that spouses are the beneficiaries of each other’s SLATs, meaning the family still has access to the funds in the trust.
  2. Evaluating Roth conversions. A Roth conversion now could help you avoid higher taxes later. Yes, you’re paying taxes earlier with a Roth, but if you do it at a lower tax rate, you can set yourself up for greater tax-free income down the road.
  3. Planning for incentive stock options (ISOs). When the Tax Cuts and Jobs Act (TCJA) sunsets at the end of 2025, nearly 7 million taxpayers could be subject to the alternative minimum tax (AMT) for the first time. (Those with incomes above $200,000 will be in the crosshairs.) We’ve suggested a few strategies to mitigate AMTs, but probably the most important is to create a plan if you have ISOs. Why? Because exercising ISOs does not impact your “regular” income tax, but it does affect your AMT calculation.

​​​​​​​​​​​​​​Keep in mind that these strategies need to be considered in the context of your broader financial plan, and they should be aligned with your short-, medium- and long-term goals. Contact your wealth adviser team with questions—we are happy to help.

Strategy Activity Update

Please see below for a summary of the trades we executed over the week through Thursday and our current tactical strategy allocations.

Dividend Income

Sell Intel (INTC)

Buy Cash

AIQ Tactical Global Growth

Sell iShares MSCI Eurozone ETF (EZU)

Buy Cash


AIQ Tactical Defensive Growth

Sell iShares Core S&P 500 ETF (IVV)

Buy Cash


AIQ Tactical Multi-Asset Income

Sell iShares Mortgage Real Estate ETF (REM)

Buy Cash




AIQ Tactical High Income

No trades

Recent Adviser News and Insights

Looking Ahead

Next week we’ll be looking at fresh data on factory orders, trade, consumer credit, job openings, the Federal Reserve’s “Beige Book” of anecdotal economic reports nationwide, and the unemployment rate for February. As always, we’ll be here to break down the data and put it into a long-term financial planning context.

Remember to visit www.adviserinvestments.com for our timely and ongoing wealth management commentary.

About Adviser

Adviser is a full-service wealth management firm, offering investment managementfinancial and tax planningmanaged individual bond portfolios, and 401(k) advisory services. We’ve been helping individuals, trusts, institutions and foundations since 1994. Adviser Investments and its subsidiaries have over 5,000 clients across the country and over $8 billion in assets under management. Our portfolios encompass actively managed funds, ETFs, socially responsible investments and tactical asset allocation strategies, and we’re experts on Fidelity and Vanguard mutual funds. We take pride in being The Adviser You Can Talk To. To see a full list of our awards and recognitions, click here, and for more information, please visit www.adviserinvestments.com or call 800-492-6868.


Please note: This update was prepared on Thursday, March 2, 2023, prior to the market’s close.

This material is distributed for informational purposes only. The investment ideas and opinions contained herein—including but not limited to the Your Question Answered section—should not be viewed as recommendations or personal investment advice or considered an offer to buy or sell specific securities. Data and statistics contained in this report are obtained from what we believe to be reliable sources; however, their accuracy, completeness or reliability cannot be guaranteed.

Purchases and sales of securities listed above represent all securities bought and sold in each strategy during the period stated. Each strategy’s portfolio generally includes more holdings in addition to the transactions listed above and in some cases the securities listed above may only represent a small portion of the particular strategy’s complete portfolio. Further, the securities listed above are not selected for listing based on their investment performance; thus it should not be assumed that any of the securities listed above were profitable or will be profitable, nor should it be assumed that future recommendations will be profitable. Clients and prospective clients should only make judgements about a strategy’s performance after reviewing the strategy’s composite performance information. There is no assurance that each security listed above will remain in the strategy’s portfolio by the time you have received or read this email. Securities are listed for informational purposes and are not intended as recommendations. Existing investor accounts may not participate in all transactions listed above due to each account’s particular circumstances.

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