If we get into the economic considerations of the stock market, it is easy to see slowing economic news coming from political and international concerns. We also have seen some worries about slowing consumer spending. That is the glass is half empty version. But let's see if there is more. The Federal Reserve has turned their attention full bore to making sure long-term interest rates remain low. You can see below the chart of the highest grade of mortgage rates. Other grades follow this trend.
In almost all economic recoveries in the past, the intial spark that gets all the positive events stirring, comes from the housing and auto revival, spurred by the Fed's low interest rates. But because of the huge decline in the housing prices, the fear has more than compensated for the low mortgage rates. But this is changing. My thesis is that housing will be the driving force during the last half of this year and next year.
To begin with, the low mortage rates are producing a huge amount of refinancing, which you can see in a chart from Calculated Risk by clicking here. This provides more money in the consumer's pocket each month after they pay that reduced mortgage payment. But you can see in another chart from Calculated Risk here, an up trend for new purchases of homes by mortgage applications has not yet started. However, in another chart here, you can see that existing home sales have shown very strong and steady improvement recently. The sales are gradually eating up the huge overhang of inventory.
Housing is right at the tipping point, and in the next few months, the tide is going to turn.
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