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Asset Allocation Chart of the Month

Crit Thomas, CFA, CAIA, Erik M. Aarts, CIMA, Brian Cheyne, CFA, CIMA
Economy & Markets
Asset Allocation Chart of the Month Header

Asset Allocation Chart of the Month

Cabin Fever

  • Housing is one of the most interest rate sensitive sectors in the economy. Yet the unique aspects of this cycle have created challenges for the Federal Reserve in its effort to slow the economy and tame inflation.
  • In theory, higher interest rates should reduce demand for housing by increasing the cost of ownership. While it’s true that single-family housing starts have decreased due to higher interest rates, we haven’t seen a corresponding drop in home prices. 
  • Typically, home prices decline following monetary tightening. However, this cycle is different. Since the Fed began raising interest rates in February 2022, the median new home price has increased by 10%, existing home prices have risen 8%, while consumer prices have increased just 6%. Not only are home prices higher, but they are also rising faster than overall inflation.
  • Higher mortgage rates have indeed lowered housing demand. New mortgage applications are at their lowest levels since 1995. However, the supply of homes has decreased even more, with existing home inventory near record lows. 
  • High interest rates have created a “locked-in effect” where homeowners either do not want to move or cannot afford to move due to high mortgage rates. An extended period of low interest rates, followed by the rapid rate hikes by the Fed, has created a significant gap between new mortgage rates and the effective rate on existing mortgages. Homeowners are locked in, while potential homeowners are locked out.
  • We believe it will take years for supply and demand conditions to normalize. In the meantime, pent-up demand for housing is growing. Even if rate cuts release some supply, we expect demand to meet it, keeping upward pressure on home prices.

Asset Allocation Chart of the Month 0624

The Touchstone Asset Allocation Committee

The Touchstone Asset Allocation Committee (TAAC) consisting of Crit Thomas, CFA, CAIA – Global Market Strategist, Erik M. Aarts, CIMA - Vice President and Senior Fixed Income Strategist, and Brian Cheyne, CFA, CIMA - Senior Investment Strategy Specialist, develops in-depth asset allocation guidance using established and evolving methodologies, inputs and analysis and communicates its methods, findings and guidance to stakeholders. TAAC uses different approaches in its development of Strategic Allocation and Tactical Allocation that are designed to add value for financial professionals and their clients. TAAC meets regularly to assess market conditions and conducts deep dive analyses on specific asset classes which are delivered via the Asset Allocation Summary document. Please contact your Touchstone representative or call 800-638-8194 for more information.

A Word About Risk
Investing in fixed-income securities which can experience reduced liquidity during certain market events, lose their value as interest rates rise and are subject to credit risk which is the risk of deterioration in the financial condition of an issuer and/or general economic conditions that can cause the issuer to not make timely payments of principal and interest also causing the securities to decline in value and an investor can lose principal. When interest rates rise, the price of debt securities generally falls. Longer term securities are generally more volatile. Investment grade debt securities which may be downgraded by a Nationally Recognized Statistical Rating Organization (NRSRO) to below investment grade status. U.S. government agency securities which are neither issued nor guaranteed by the U.S. Treasury and are not guaranteed against price movements due to changing interest rates. Mortgage-backed securities and asset-backed securities are subject to the risks of prepayment, defaults, changing interest rates and at times, the financial condition of the issuer. Foreign securities carry the associated risks of economic and political instability, market liquidity, currency volatility and accounting standards that differ from those of U.S. markets and may offer less protection to investors. Emerging markets securities which are more likely to experience turmoil or rapid changes in market or economic conditions than developed countries.

Performance data quoted represents past performance, which is no guarantee of future results. The investment return and principal value of an investment in the Fund will fluctuate so that an investor’s shares, when redeemed, may be worth more or less than their original cost. Current performance may be higher or lower than performance data given. For performance information current to the most recent month-end, visit TouchstoneInvestments.com/mutual-funds.

Please consider the investment objectives, risks, charges and expenses of the fund carefully before investing. The prospectus and the summary prospectus contain this and other information about the Fund. To obtain a prospectus or a summary prospectus, contact your financial professional or download and/or request one on the resources section or call Touchstone at 800-638-8194. Please read the prospectus and/or summary prospectus carefully before investing.

Touchstone Funds are distributed by Touchstone Securities, Inc.*
*A registered broker-dealer and member FINRA/SIPC.
Touchstone is a member of Western & Southern Financial Group

Not FDIC Insured | No Bank Guarantee | May Lose Value

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