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SPDR S&P 500 Message Board

  • fed_up_c_ws fed_up_c_ws Jun 25, 2013 10:20 AM Flag

    WHY EXISTING HOME SALES ARE NOT SO BULLISH

    For one, rising interest rates the late few months have motivated buyers to get off the fence and buy, so the increase is mostly pent up demand, which will quickly wane.

    Secondly, it will be short-lived. The national average 30-year fixed has gone from 3.40% on May 1 to 4.875% as of yesterday (Wells Fargo). The matching affordability collapse: from $450K to $378K, or a stunning 16% price drop in under two months.

    Third the housing market is being totally subsidized by the FED MBS purchases, since Fannie and Feddie are in government-induced comas. Commercial banks do not want to make low interest 30-year loans in the face of inevitable rising long term interest rates (end of the bond bull), when they know they cant lay them off on the government. That would be a recipe for disaster, which they have seen before (S&L crisis, which ironically gave rise to the now defunct Fannie and Freddie Mac)

    Fourth, the majority of home sales are to investors, private home ownership is declining and sits at 20-year lows.

 
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