How to Play Housing

WASHINGTON (MarketWatch) - Sales of new U.S. homes tumbled 2.5% in May to a seasonally adjusted annual rate of 512,000 as sales in the West fell to a 26-year low, the government said Wednesday. The decline nearly matched economists' expectations. It was the lowest since the 501,000 rate in March. New-home sales were down 40.3% compared with a year earlier. The median sales price in May was $231,000, down 5.7% from a year earlier. The number of homes on the market fell to a three-year low of 453,000, representing a 10.9-month supply.

If I were to tell you that the housing market is being killed by the banks not lowering lending (mortgage) rates you might think I'm stating the obvious. However, I have not heard that housing will rebound with the banks supply of money. Everyone is circulating this idea but not harping on it directly.

The above quote, shows us that inventory is HIGH (we know this), BUT only in relative terms. Relative to the rate of sales. Think of it this way, 450,000 is not a lot for our economy to swallow given the large fall in home price. The market is no longer irrationally inflated. Demand for home is not longer being choked off by the price of the property but the price of the money!

This rate of sales is being choked by the lack of liquidity of the banks: mortgage applications are hitting low for 2008 even while the Fed has been cutting rates. This discrepancy is irregular.
http://money.cnn.com/2008/06/18/news/economy/mortgage_applications.ap/index.htm

To sum up, play the housing stock- if you're brave enough - inversely to mortgage rates.

I cannot believe that one has pointed out this inverse relationship between homebuilders and the 10 year note over the last 6 months!