Investors may not like that the Fed continues to keep interest rates near zero. But it seems to be working for the housing market.
Freddie Mac (FMCC) reported today that average 30-year mortgage rates have fallen again to a new record low of 3.66%. The 5-year rates also established a new low of 2.77%.
The low mortgage rates are in part a byproduct of Operation Twist, a Federal program designed to push borrowing costs lower. The Fed extended the program – which was installed in September – through the end of the year yesterday.
That should help the housing market, which is still struggling to awake from its post-recession slumber even with record-low mortgage rates. Existing home sales declined another 1.5% in May – a figure the National Association of Realtors blamed largely on limited housing inventories. However, the 4.55 million units sold nationwide was a 9.6% improvement from the 4.15 million units sold in May 2011.
So while the extension of Operation Twist didn’t go over well with investors hoping instead for a third round of quantitative easing yesterday, it does bode well for prospective homebuyers.
And though the housing market itself has been sluggish, housing stocks have been on the rise this year. Two ETFs that track the housing sector have been on a roll in 2012. The SPDR Homebuilder (XHB) exchange-traded fund is up 16.5% this year. Meanwhile, the iShares Dow Jones U.S. Home Construction (ITB) ETF is up a whopping 27.6% year-to-date.
The reason is simple: new single-family homes are climbing at a fairly rapid pace. Work began on 516,000 single-family homes in May, up 3.2% from April and the highest total in 2012. Building permits also rose to their highest level in nearly four years.
So with new-home construction on the rise, a turnaround in the housing market could be on the horizon. The good news for investors is that housing stocks have already gotten a head start.
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