Rallying Pushes On

home salesAnother 100 point rally ended with the Dow today as surely many are buying into Bernanke's belief of an recession that is now over. Indeed, no one can deny how impressive it has been to see the market rally for so long and I congratulate those who have made some significant money off riding it up. I, unfortunately, have not been able to pull the trigger and will not be able until I see a stabilization of certain very critical areas of the economy. Don't get me wrong, my ultimate hope is for as quick a recover as possible, but despite such recent strong performance from Wall Street, I still strongly believe we are not finished with scary times.

As I have said before, a critical influencer in the economy is the movement and prices of homes. This summer, for many markets, housing sales have gone up a bit as have new home sales. Some have taken this as the sign that the residential crash is over. For me, there are things to consider when evaluating the housing market. First, the season. Everyone knows that Spring and Summer are hot home buying months. It's convenience for families to move in between school years and the weather is hot and warm. So to see a month to month change in home purchases is not all that surprising. However, year over year, we remain significantly lower.

Another big influence, especially on new home sales is the $8,000 tax credit. It is estimated that over 1/3 of all the new home buyers are using the $8000 credit. In fact, since its creation in January, there has been a consistent gain in new home sales. Home builders now worry that due to the program's November expiration, new home sales will considerably drop. They may be right.

In addition to the tax credit, is the mass amount of Freddie and Fannie debt that the US Treasury is purchasing. Conforming home loans are some of the only loans available in the market for most banks. This is because the US Treasury has been purchasing all Freddie and Fannie conforming loans. As a result, we have seen record mortgage interest rates, which have reached below 4.5%. It is estimated that a total of $2.3 billion has been saved from mortgage rate savings. Per household, that comes out to about an average of $110 per month. The problem is the government cannot buy these loans forever and plans to stop at the beginning of next year.

Openings at $100K & Above!

As I have said before, the big question is: can this economy stand on its own two feet? A recovering stock market is a great story and wonderful to see, but unfortunately, it has no fundamental tie to the actual progression of the economy. Sustainability is always the key. Happy Trading.



    Housing is a area to avoid.