Monday, April 6, 2009
These two charts make the case that the housing market has seen the worst of its decline, which started over three years ago. The first chart is Bloomberg's index of the stocks of major home builders, and today it is about at the same level it was at in mid-October. Despite all the terrible housing news, these stocks have not declined further in value on balance over the past six months—a good sign that all the bad news has been priced in. The second chart shows the yield on 10-year Treasuries compared to the yield on FNMA current coupon conventional mortgages (homeowners pay a rate about 50-100 bps higher than that). What we see is the MBS spreads are back to "normal" levels while mortgage rates are at generational lows. Indeed, since the MBS market was first created in the 1970s, rates have never been so low. Add to that the fact that home prices are significantly below their highs in both nominal and especially in real terms, and you have a tremendous surge in housing affordability. No wonder sales activity is picking up dramatically in all the markets that have been the most distressed.
If you have been thinking of buying a home, don't delay much longer.
Posted by Scott Grannis at 11:15 AM