There is no bear market signal for stocks yet from the U.S. housing market, noted stock market technician
Tom McClellan wrote in a recent blog.
"Before each of the really ugly bear markets of the past 30 years, there has been an important signal from housing data well ahead of time. We do not have such a signal now, and so that portends more upside in the months ahead for stock prices," he wrote in his blog.
McClellan, editor of McClellan Financial Publications, wrote that home sales have surged during the past three months in the Northeast and South regions of the U.S., rising to their highest seasonally adjusted annual rate since February 2008.
On his blog, McClellan laid a chart of the Dow Jones Industrial Average (DJIA) alongside new family home sales data from the Census Data to show how stocks often follow the direction of home sales.
"Generally speaking, seeing this home sales data make higher highs has been good news for the long-term path of stock prices. It is when the two diverge that problems start to develop," he wrote.
However, despite the favorable housing sales trends of the moment, McClellan wrote that another indicator shows potential problems may be lurking some time ahead.
That indicator is lumber prices, and in his view the fact that lumber prices have recently stumbled means there could be weakness ahead for housing sales, too. That would suggest a knock-on downward tug on stock prices.
It is "hard to imagine that the large downward movement we have seen in lumber prices over the past 12 months would not result in a significant response in the new home sales data," he wrote.
"If and when we see such a response in the new home data, then we can start worrying about a potential divergence relative to the DJIA. . . . For now, we do not have such a divergence evident, and so on that basis there is less reason to worry about a major bear market for stock prices," he wrote.
CNNMoney's Paul La Monica wrote that U.S. housing exchange-traded funds have risen to the same elevated levels they hit in 2007, shortly before the market tanked.
"At a bare minimum, the refi boom may be over. And if mortgage rates really spike higher, we could start to see a slowdown in both existing and new home sales," he predicted.
According to La Monica, chances of another subprime meltdown in the housing market are slim.
"But don't be surprised if the housing market starts to cool off for a bit given how spectacular the rebound has been. And if that's the case, economic growth may start to slow a little as well," he wrote.
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