As summer sets and Labour Day looms there is an air of boom time to markets that rip out record highs day after day. Powell played the ball with soft hands at the Jackson Hole highbrow pow-wow and investors collectively exhaled. All is good with the data which, in the main, is behaving as is desired: back-to-school foot traffic is at an all-time high, inflation fears appear to be fading, jobs data remains robust and a topping out of Covid cases suggests momentum is set to continue into the fall. And yet…housing. All is not well in the shed, and it is an issue that might begin to fray the headlines into year-end. Having gone parabolic house prices are now a problem, despite 30-year mortgage rates at never-seen-before levels. Indeed the gap between house prices and inflation is the largest on record with the former having to fall some 40% just to get back in line with the long-term inflationary trend. That the housing market has been juiced by an up-for-it central bank is not in doubt, but if long-term rates begin to creep back up then monthly mortgage payments are going to get a little sweaty given that the median home price is now not an insignificant $370,600 – up from a more manageable $297,000 a year or so ago. No wonder the ‘Good time to buy a house’ index out of the University of Michigan is sitting at its lowest level in history. It’s an odd predicament for housing sentiment to be this weak with rates as low as they are, hence the risk that it’s all about to go sour. With the Fed set to pare its taste for $40 billion of mortgage-backed securities each month, the stage is set and, in the months to come, housing starts might be the key data set to watch. All told, in a market fully gassed up on margin debt, it’s all set up for a choppy year end run in; a run in where active stock picking should thrive.