The top chart shows the rate on 30-yr fixed conforming and fixed-rate mortgages, and the bottom chart is an index of new mortgage applications. Mortgage rates have been at all-time lows for the past several months, and new applications for mortgages have jumped 30% since last August. It's looking like the appeal of cheap financing and the unprecedented affordability of housing prices have finally gotten the attention of consumers. Demand for home purchases is finally responding to favorable prices. Or, to put it another way, prices and financing costs have finally fallen by enough to stimulate demand. The recent upturn in new mortgage applications may prove to be the signal that the housing market has finally hit bottom and is beginning to pick up. Very encouraging.
This chart shows the housing affordability index published by the National Assoc. of Realtors. It is saying that a median family income is now almost double what is needed to purchase a median-priced home using conventional financing. Homes are more affordable than ever before.
This chart shows the S&P Homebuilders ETF, which is behaving in a manner consistent with the housing market having seen the worst, and the beginnings of improvement, albeit still modest. Homebuilders' stocks are down almost 70% from their 2005 high, and new housing starts are down by a similar amount. If the outlook for housing is indeed beginning to improve, homebuilders' stocks could have some tremendous upside potential in the years to come.
Is this what hyper-inflation look like? The most affordable housing of all time? A CPI, PPI and un it labor cost index all going negative in the latest reading?
ReplyDeleteEgads, the Fed needs to start targeting nominal GDP growth.
A central bank can beat inflation. The Bank of Japan has proven that.
The question is, can a central bank steer a course (with the help of federal government) towards prosperity?
Scott,
ReplyDeleteDo you think the Euro leaders will be able to calm the markets or do expect the markets to once again express disappointment?
Weyerhaeuser Company Common Stock is showing a similar pattern and pays a dividend of 3.5%. Owning forested land is a good inflation hedge.
ReplyDeleteWhen looking at mortgage rates one should look at the REAL interest rate a homebuyer is paying to finance an asset that is declining in value.
ReplyDelete4% mortgage + 6% housing deflation = 10% real interest rate.
I had dinner at a local restaurant in Destin, Fl this evening with a real estate agent friend. I was told prices here are now rising in many catagories. Buyers are not yet getting aggressive, but prices are definately stabilized.
ReplyDelete@Bill...Don't look for a magic bullet to save Europe. Its going to be a long process. I expect the ECB will continue to provide enough liquidity to keep rates from killing the insolvent banks but this is likely going to be with us for awhile. The bears will continue to use it as a scare tactic, and the markets will remain volatile. Scott's advice re high yield bonds and high quality dividend paying stocks offering good value I think is accurate. Money sooner or later must find yield or inflation will eat it away.
Hope you have a safe and happy Holiday season.