The Housing Boomlet’s ‘Elephant in the Room’

Well, that’s two straight Tuesdays that U.S. stocks have fallen. Has Wall Street finally noticed that the real estate sector – the only big winner in American’s sham “recovery” besides the stock market itself – is starting to deteriorate?  Hard to say, although lately, we’ve had our doubts that yield-crazed U.S. investors would lose a beat even if an epidemic were to wipe out half of the world’s population. They barely flinched a couple of weeks ago when Japan’s stock market was freefalling. And if deepening recession in Europe and a steep drop in China’s output bode trouble head for the global economy, neither factor has had a noticeable impact on U.S. stocks, which touched record highs as recently as two weeks ago.

Now, however, comes a worry that will literally hit investors where they live: a steep increase in long-term yields that has pushed 30-year mortgage rates up by 56 basis points in just the last five weeks.  As our colleague Michael Belkin notes, this is equivalent to two rate hikes by the Federal Reserve. An immediately visible result, he says, is that mortgage applications dropped 11% last week and mortgage lenders are starting to lay off brokers. If home sales start to cool even slightly, we wouldn’t be surprised if the “wealth effect” that the Fed has struggled so hard to create over the last five years vanishes in a trice, since Americans have precious few things these days, other than inflated home values, to make them feel wealthier. (Certainly not higher real incomes, which have stagnated since the 1970s.)(…)
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© Rick Ackerman and www.rickackerman.com, 2013. |
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