Rising Rates Increasing Home Sales


How many times over the last four or five years have you heard this?:

Rising intereste rates will damage/stop/hurt the housing recovery

Hint: When something is incessantly repeated and said to be “conventional wisdom”, one owes it to oneself to really dig into it and verify the “wisdom” part.

After A Tough Year, Odey Asset Management Finishes 2021 On A High

For much of the past decade, Crispin Odey has been waiting for inflation to rear its ugly head. The fund manager has been positioned to take advantage of rising prices in his flagship hedge fund, the Odey European Fund, and has been trying to warn his investors about the risks of inflation through his annual Read More

From Brian Wesbury on today’s existing home sales report:

All-cash buyers accounted for 22% of sales in June, down from 32% a year ago. As a result, while total sales are up a healthy 9.6% from a year ago, non-cash sales (where the buyer uses a mortgage loan) are up a more robust 25.7%. So when all-cash sales eventually bottom out, total sales will start rising at a more rapid pace. The gain in mortgage-financed sales suggests a long-overdue thaw in lending.

What’s interesting is that the percentage of buyers using credit has increased as the Fed tapered and then ended QE. Those predicting a housing crash without more QE were completely wrong. In fact, rising rates appear to be increasing the pace of sales, as buyers look to lock in terms before the looming fed rate hikes push borrowing costs higher. The details of today’s report were solid as well. Rising prices are bringing sellers to market (inventories rose for a fifth consecutive month in June), but supply hasn’t been able to keep pace with demand. In fact, the average time it took to sell a home in June decreased to 34 days from 40 in May, the fastest pace since recording began in 2011. Look for more inventory to come to market in the year ahead as “on-the-fence” sellers move to take advantage of higher prices.

In other housing news this morning, the FHFA index, which measures prices for homes financed with conforming mortgages, increased 0.4% in May and was up 5.7% from a year ago.

I’ve been pounding the table for a couple years that rising rates will aid, not hinder the housing recovery for a few reasons:

1- More credit will become available to those currently shut out as banks will enjoy more favorable spreads on all loans

2- Those buyers on the fence will be pushed to buy before rates rise again

3- Those on the fence on whether or not to sell will also be incentivized to sell (if they will use a mortgage to buy on the other side they’ll to do so before rates rise further). This will bring much-needed inventory to market

4- More transaction on both new and existing homes will be a huge benefit to the overall economy which will spur even more activity (virtuous circle).

The housing market is really the last part of the economy to fully recover from the recession. The main reason is artificially low rates  that have restricted credit across the credit spectrum. Higher rates will cure that and we could see the rest of 2015 and especially 2016 set up for significant growth in the overall economy spurred by housing’s resurgence.

The post Rising Rates Increasing Home Sales appeared first on ValuePlays.

Todd Sullivan is a Massachusetts-based value investor and a General Partner in Rand Strategic Partners. He looks for investments he believes are selling for a discount to their intrinsic value given their current situation and future prospects. He holds them until that value is realized or the fundamentals change in a way that no longer support his thesis. His blog features his various ideas and commentary and he updates readers on their progress in a timely fashion. His commentary has been seen in the online versions of the Wall St. Journal, New York Times, CNN Money, Business Week, Crain’s NY, Kiplingers and other publications. He has also appeared on Fox Business News & Fox News and is a RealMoney.com contributor. His commentary on Starbucks during 2008 was recently quoted by its Founder Howard Schultz in his recent book “Onward”. In 2011 he was asked to present an investment idea at Bill Ackman’s “Harbor Investment Conference”.
Previous article JANA Partners Winning At Qualcomm Inc (QCOM)
Next article What You Need to Know About China Gold

No posts to display