The stock market has been on a roller coaster ride in recent months, with the S&P 500 index hitting all-time highs in February before plunging into a bear market in March. The bond market has been a different story, however, with yields on 10-year Treasuries falling to historic lows. This has led to speculation that the bond market may be signaling a secular bear market in stocks, with the housing sector particularly vulnerable.
The housing sector has been one of the strongest performers in the stock market over the past decade, with the S&P 500 Homebuilders Index more than doubling since the start of 2010. This has been driven by a combination of low interest rates, strong economic growth, and a tight labor market.
However, the recent decline in bond yields has raised concerns that the housing sector may be vulnerable to a secular bear market. The yield on the 10-year Treasury has fallen from a high of 3.25% in November 2018 to a low of 0.51% in March 2020. This has caused mortgage rates to fall to historic lows, which could lead to a slowdown in home sales and a decline in home prices.
At the same time, the coronavirus pandemic has caused a sharp decline in economic activity, leading to a surge in unemployment and a sharp drop in consumer confidence. This could lead to a further decline in home sales and prices, as well as a decrease in demand for new construction.
The outlook for the housing sector is uncertain, and it is difficult to predict whether the current decline in bond yields is signaling a secular bear market in stocks. However, it is clear that the housing sector is particularly vulnerable to a prolonged period of low interest rates and weak economic growth. Investors should be cautious when investing in the housing sector, and should be prepared for a potential decline in home prices and sales.