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.