The opinion of John Mauldin is that the Fed's desire to prop the housing market trumps all other concerns, and he sees a continuation of low rates through the election.
Says Mauldin:
"Taken all together, if the recent softening data is telling us anything, it suggest that it will take an improving unemployment picture simply to MAINTAIN housing demand, let alone increase it enough to let the Fed feel comfortable about raising rates.
Next week, we will examine how much of the recovery can be laid to the stimulus from tax cuts and mortgage refinancing. But since we are on the subject of housing, let's look at the mortgage application data. Weldon notes in last week's Money Monitor:
"Meanwhile, the already severe, and now worsening, EROSION in the Fixed- Rate sector continues unabated:
"Fixed-Rate Mortgage Applications ... down (-) 7.5% for the week, putting it down (-) 25.4% over the last four weeks, and DOWN by a STEEPLY negative (-) 45.6% yr-yr.
Even WORSE:
"Refinance Index ... reading of 1908.3 in latest reporting week, was down (-) 7.9% for the week, but more importantly, represented the SECOND LOWEST reading of the YEAR, second only to the lowest reading posted just two weeks ago ... while the Applications for Refinancing have PLUNGED by (-) 53.5% on a year-year basis.
"Indeed, the Refi-Index has now posted two weeks in the last three, BELOW the 2,000 level. Compare that, with this year's PEAK reading, posted at 9,977.8 during the last week of May, during a string of three consecutive weeks ABOVE 9,000 !!!"
This is not to say the housing sector is getting ready to fall off a cliff. It is not. It will slow down from the torrid pace of 2003, but is should remain ok for 2004, as the point is that the Fed is going to do everything in its power to keep rates low, and I think rates are going to stay low a lot longer than the conventional wisdom thinks."
Says, AE, we'll see. I'll watch, but this is a key time period where past theory on inflation, Fed action, and currency adjustment hits reality. |
