Lending Starts to Expand Despite Higher Rates

Lending Starts to Expand Despite Higher Rates

“Davidson” submits:

In spite of the headlines heralding that higher rates will result in a collapse of the housing market, this one story stands out(see below)to reveal that lenders are actually lowering standards to expand mortgage availability. That lenders are lowering underwriting standards at this point in the current cycle is  typical of past economic cycles! The full story is available at the link: JPMorgan Removes Lending Barriers in Booming U.S. Markets JPMorgan Chase & Co (NYSE:JPM)

Lending Starts to Expand Despite Higher Rates

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For several months I have noted that rising rates were a sign of economic health and specifically indicated that banks Select Sector Financial Slct Str SPDR Fd (NYSEARCA:XLF) would lower overly strict lending standards with regards to residential housing. For those who have studied economic cycles, this Bloomberg article should be no surprise. In the months ahead we should witness higher home prices, expanded lending, expanded residential construction and very importantly an increase in Residential Construction Employment. Increases in Residential Construction Employment are estimated by the Mortgage Bankers Assoc to result in additional 7-8 fold increases added to general employment. This is because the average new home price of ~$260,000 requires a list of materials and services such as lumber, cement/concrete, copper and the skills to work with these materials within the various housing codes across the country. Some of the new jobs created are less directly connected, but connected just the same such as auto manufacturers adding to pickup truck lines for the construction industry and adding to mid-size automobile production for real estate agents, mortgage bankers, appraisers, insurance agents and etc, etc.

Take this story and couple it with the seasonal cycle of the housing market, i.e. strongest in the Mar- April and weakest in Dec-Jan, and the fact that this year the peak of the season was extended into July 2013 and one sees strength not weakness in our current cycle. The view I recommend you take is very much contrary to what has been present in the media!

Being contrary is what separates Value Investors from crowd thinkers. A Value Investor must locate the economic threads and place them in historical context to be able to invest against the perceived wisdom. This is the approach I recommend. This approach is often in conflict with the accepted wisdom, but it leads to investing at all times in the undervalued, under-owned asset classes. Domestic and International LgCap stocks remain the favored investment asset classes in my opinion. Bonds are at risk for higher rates with the only exception being a single asset class which I have and continue to recommend to those for whom it is appropriate.

The economy is progressing as expected.

Via: valueplays

Updated on

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”.
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