By George Leong for Investment Contrarians
Jun 21, 2013
Get ready folks, the party in the housing market may be drawing to a close. Sure, the housing market has steadily improved—you can thank the Federal Reserve for that. But nothing lasts forever.
Just take a look at the steady rise in the 30-year fixed-rate mortgage rates after Federal Reserve Chairman Ben Bernanke suggested he might have to reduce his monthly bond buying—buying that helped to drive down lower-term financing rates.
Of course, by the time you read this, it’s likely that we all will know what the Fed has decided to do.
According to the Mortgage Bankers Association (MBA), the average contract interest rate for 30-year fixed-rate mortgages was at 4.17% for the week of June 14—marking the highest level since March 2012 and the sixth consecutive week of higher rates. (Source: “Weekly Application Survey,” Mortgage Bankers Association web site, June 12, 2013, last accessed June 20, 2013.)
Now we are seeing a rise in home mortgage applications, up five percent week-over-week, according to the MBA. Yet, driving the demand is clearly a rush of applicants who want to lock in the low mortgage rates in the housing market, fearing interest rates will inevitably move higher. The refinance demand is similar. The rise in applicants doesn’t necessarily mean home sales, but simply a move to try to lock in rates.
In the housing market, there’s some evidence of stalling, but the speculation is that the homebuilders that have done really well have decided to hold off on the flow of homes in order to cash in on the higher home prices that are currently available.
In May, housing starts came in at an annualized 914,000 units, which was below the Briefing.com estimate of 925,000, but above the 856,000 in April. Building permits came in at an annualized 974,000, in line with Briefing.com estimates, but falling short of the more than one million in April.
I’m not saying that the housing market is set for a collapse, but the easy money available in that sector may have already been made.
The chart of the S&P Homebuilders Index below shows the current situation and the possibility that the index could ratchet higher from here; and that is exactly what happened in late March to April when a similar pattern surfaced on the chart, according to my technical analysis. My thinking is that the index could spike higher if the Fed decides to continue to print money and to keep rates low longer.
Chart courtesy of www.StockCharts.com
The reality is that home prices have been moving higher. The average prices in the top-20 housing markets nationwide surged to 10.9% in March, according to the S&P/Case-Shiller Home Price Index, featured below. It was the 14th straight up month for prices in the housing market, as reflected in the chart below.
Continue reading at Did the Federal Reserve Just Kill the Housing Recovery?.