What historically is one of the major drivers of construction and the housing market?  If you answered interest rates you are correct.  So lets look at housing rates right now.  Here is a chart of the 30-Year fixed rate.

30-Year Fixed Rate

What about real yields?  After all a few months back we showed how real rates were at multi year highs.  Well that time has passed as rates are once again close to 30 year lows.

Real 30-Year Fixed Rate

With interest rates this low you would think that we would at least be seeing decent sales growth if not record breaking.  And yet as the numbers showed today the sales are not coming.  Look at the chart below.  The red line is the all time low which happens to be from the most recent release.  Fewer homes were sold in April then in any other time in at least the last 50 years.

New Home Sales

Right now it seems as though our long held deflationary beliefs are correct and that the economy still has too large of a gap to be expecting any real inflation.  We will of course see how this all turns out but anytime you have near record low interest rates and new record lows in housing sales it definitely does not bode well for the economy.  Double dip here we come.

Happy Trading,

Dave@TheMacroTrader.com

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Here is a shocker…..in spite of rising stock and bond markets and the supposed V shape recovery more and more families continue to go 90 days or more delinquent on their mortgages.  As you can see in the chart below since June of 2007 delinquencies have risen every single month. (Click on chart twice to enlarge)

Freddie Mac Delinquencies

To put this into perspective let’s drill down into the numbers a bit.The historic average delinquency rate for non-credit enhanced is .71% and the current reading is 2.88%.  The historic average rate for credit enhanced is 2.81% and the current reading is 7.84%.  The historic average rate for total is 1.08% and the current reading is 3.72%.  And finally the historic average rate for multi-family is .04% and is currently at .14%.  In case you haven’t noticed the current reading on each of these is anywhere from 2.8 to 4.08 times their historic average.

This is just one of the indicators pointing to further weakness in residential real estate.    One potential trade that we are following is that of shorting IYR.  For now we are just stalking it as it continues to move higher but we expect that in the next one or two months the reality will once again hit home and investors will start paring off some of their gains as the underlying fundamentals do not justify current prices let alone higher ones.

Happy Trading,

Dave@TheMacroTrader.com

Disclaimer-The Macro Trader currently holds no positions in housing related stocks.

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