An observation on today's markets, housing story, and bonds

hank

Housing last month took an unexpected hit - perhaps in response to rising mortgage rates. The ten-year Treasury pulled back to around 2.85% as of mid-morning (from 2.9% Thursday). Gold caught my eye - up 20 bucks on the news (Reports about the death of QE may have been greatly exaggerated:-) Liked Ted's link on munis holding a "fire-sale" - But, the problem with fire-sales is prices can always go lower. Note: He didn't say "liquidation sale".

I've long liked TIPS in principal - but all forms of govt. debt have seemed wildly over-priced in recent years. So, was effectively shut-out of these areas. Moved a bit of cash into PRIPX yesterday (off about 9% YTD). Am sure there are better TIPS funds out there. This just worked best in my case. Would capture some gains if bonds advance because the fund's a bit volatile for my tastes. Still, as some here and Ted's story suggest, near-term downside risk seems limited after the sharp run up in 10-year rates (which equates to a more than 100% increase in a bit over a year). Longer term, bonds likely face stronger headwinds.

Reuter's article on the housing story http://www.reuters.com/article/2013/08/23/us-usa-economy-idUSBRE97M0MG20130823

scott

Cash sales of houses were something like 15-20% in 2007/2008. They are now something like 60%. First time buyers are also a much smaller portion of the market. I think housing probably bottomed, but I still think enthusiasm has gotten ahead of itself. It really depends on investors and large investors seem to be looking for an exit - securitization of rentals by Blackstone, etc.

If people were not wanting mortgages at 3.5%, they aren't going to be as interested at 4.5%+.

Sales of single family homes vs mortgage apps chart:
http://www.zerohedge.com/sites/default/files/images/user3303/imageroot/2013/06/20130605_MBA1.jpg

http://www.zerohedge.com/news/2013-08-15/stunning-60-all-home-purchases-are-cash-only-200-increase-five-years