Housing Market at Risk from Delinquencies, Interest Rates, and Low Sales

After reaching a new all-time high on Monday, gold has taken a breather as recent stock market weakness continued. Even after a healthy pullback of over 3% since the highs on Monday, the yellow metal is still trading well above its January close and remains in a bullish posture since its $300 up-leg commenced in early December 2024.

Short of a widespread and sustained liquidity event hitting major markets, gold should continue to have a tailwind – thanks to tariff and inflation concerns, weaker-than-expected economic numbers, and stock market volatility. 

With all these headlines about gold arbitrage and airlifts between London and New York, and most recently, Fort Knox gold audits, the public is starting to notice what's been happening with gold prices.  Gold still looks poised to push past $3,000 per ounce during its seasonally strong Spring period, albeit maybe not just yet. 

For the week gold is now down 3.0% to come in at $2,859 an ounce. This will end gold’s remarkable streak of weekly gains at eight weeks.

Meanwhile, in silver, it too has taken it on the chin here the second half of the week. The white metal is off nearly $1.50 now since last Friday’s close to come in at $31.24 an ounce, suffering a 4.3% weekly decline.

As for the PGMs, both platinum and palladium are trading at exactly $958 each as of this Friday morning recording. That is resulting in a 3.1% weekly drop for platinum and a 4.8% decline for palladium.

As you know, the Federal Reserve has put its interest rate cuts on pause due to sticky price inflation. The move makes sense, but why did the Fed start slashing interest rates in the first place? It was clear that the inflation monster wasn't dead when it surprised markets with a super-sized rate cut last September. 

The Fed needed to cut rates because there is so much debt in the economy incentivized by well over a decade of artificially low rates and money creation. In simplest terms, the economy is addicted to easy money and it needed a fix.

The Federal Reserve is in a Catch-22. It simultaneously needs to cut rates to keep the bubble economy inflated and raise rates to keep the inflation dragon at bay. Right now, the central bank seems to be focused more on price inflation. However, high interest rates have consequences.

This rise in mortgage costs has had a significant chilling effect on the housing market in the U.S. Sales of existing homes plunged by 4.9% month-on-month in January and were only 2% higher than a year ago. To put it into some context, 2024 was the worst year for existing home sales since 1995. Compared to January 2021, home sales were down by 36%.

WolfStreet called it "demand destruction" due to high prices that never came down after the inflation of the pandemic era coupled with high interest rates. 

The slowdown in housing sales has resulted in an inventory glut. The supply of unsold existing homes on the market jumped to 3.5 months in January. That was the highest level since January 2019. Meanwhile, active listings and the median number of days before a home sells rose to the highest level since January 2020. 

The fact of the matter is buyers are reluctant to wade into the market with prices still high and mortgage rates above 7%. According to Redfin, 82.8% of homeowners have mortgage rates under 6%, creating a "lock-in" effect where they avoid selling if at all possible to avoid a higher rate.

At the same time, serious mortgage payment delinquencies have actually exceeded the high levels seen during the 2008 housing collapse.  But almost no one in the mainstream financial press is talking about it. 

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