There were many reasons that the bull market from 2009 to 2020 was so durable and resilient, but a major factor was the strength of housing starting from 2012 onwards.

Rising home prices have many spillover benefits. It leads to increased employment and activity in other industries which are also labor-intensive. The wealth effect leads to increased consumer spending and confidence which is a big deal in an economy where consumer spending accounts for 70% of all activity.

So, it makes sense that investors and analysts are closely watching the housing market to see how it acts as rates rise and there are increasing fears that the economy could slow down.

But, there were also some unique factors that contributed to the housing market's strength during the last bull market. For example, the housing market was coming out of a crash, there was a weak economy resulting in rates staying low and trending lower, and undervaluation in many regions.

This time, prices have been soaring higher, and the market is plagued by undersupply, while demand is supported by demographic factors. However, one headwind is that mortgage rates have risen which is denting affordability.

In terms of the economic data, we are seeing an impact on the margins. Refinancing applications were 68% lower than the same period last year, while overall purchasing applications fell by 14%. Applications for adjustable-rate mortgages increased, while fixed-rate mortgage applications declined.

The increase in home prices has also slowed, and the anecdotal reports about bidding wars in certain markets have also cooled. However, this is far from a contraction or reason to fear that prices could start declining.

Instead, this could be a period of consolidation for the housing market when we see demand cool due to higher rates, and some inventory appears which could result in prices finding a healthier equilibrium.

Finally, these outcomes are probably what the Federal Reserve desires as these are indicators that the Fed's efforts to combat inflation is feeding through to the financial markets and real economy.