U.S. Housing Market: Remains Under Siege But ...
The recent Senior Loan Officer Survey (SLOS) by the Federal Reserve Board indicates that U.S. banks are continuing to ease their lending standards on consumer loans (please note the reverse scale on the chart). Consumer confidence is also on the rise.
Sources: FRED; Federal Reserve Board; Plexus Asset Management.
Furthermore, the yield gap between 30-year home mortgage bonds and 30-year government bonds are again testing historical lows.
Sources: FRED; Plexus Asset Management.
By the looks of it the easier money and optimism will support the house market. But do they?
Well, surprise, surprise! Households continue to shun the house market as the SLOS indicates that banks are in fact experiencing a slowdown in demand for mortgage loans.
Sources: Federal Reserve Board; Plexus Asset Management.
At this stage banks are not yet relenting on their tight standards for mortgage loans, but who can blame them given the oversupply in the U.S. market? The question is whether QE2 is in fact producing the necessary results. Obviously not in so far as the housing market is concerned.
Sources: Federal Reserve Board; Plexus Asset Management.
U.S. consumers are probably also fretting about the surge in long-term interest rates and the recent jump in mortgage rates.
Sources: FRED; Plexus Asset Management.
There is some light at the end of the tunnel, though. It seems as if there is a reasonable correlation between house prices and consumer confidence. The latter turning for the better in the final quarter of last year and surging in January may turn out to be positive for the U.S. housing sector.
Sources: FRED; Standard & Poors; Plexus Asset Management.
The outlook for consumer confidence is upbeat if you believe long bond rates.
Sources: FRED; Plexus Asset Management.
Surely that means that the economy has strengthened further, you may ask? Yes, although volatile, the yield on the 10-year government note is in fact a reasonably good indicator of MZM (money zero maturity) and therefore the economy in general. The recent surge in long bond rates indicates that MZM velocity, and therefore the economy, is likely to surge in the current quarter.
Sources: FRED; Plexus Asset Management.
For those who think the U.S. housing market is set to implode further, do not hold your breath.
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Author: Prieur du Plessis
Dr Prieur du Plessis
investmentpostcards.com
With 25 years' experience in investment research and portfolio management, Dr Prieur du Plessis is one of the most experienced and well-known investment professionals in South Africa. More than 1 000 of his articles on investment-related topics have been published in various regular newspaper, journal and Internet columns. He also published a book, Financial Basics: Investment, in 2002.
He holds the following degrees: BSc (Quantity Surveying) (Cape Town), HonsB (B & A) (cum laude) (Stellenbosch), MBA (cum laude) (Stellenbosch); and DBA (Doctor of Financial Management) (Stellenbosch).
Prieur is chairman of the Plexus group of companies, which he founded in 1995. Previously he was general manager: portfolio management at Sanlam, responsible for the management of investment portfolios with total assets in excess of $5 billion.
Plexus is a pioneer in the mutual fund industry and has achieved a number of firsts under Prieur's leadership. These include the authoritative Plexus Survey, a quarterly analysis of the consistency of the performance of unit trust management companies, the Plexus Offshore Survey, the Plexus Unit Trust Indices, and the PlexCrown Fund Ratings.
Plexus is the South African partner of John Mauldin, American author of the most widely distributed investment newsletter in the world, and also has an exclusive licensing agreement with California-based Research Affiliates for managing and distributing its enhanced Fundamental Index™ methodology in the Pan-African area.
In 2001 Prieur received the Santam/AHI Business Leader of the Year award for corporate leadership, business acumen and entrepreneurial flair. He was also profiled in the book South Africa's Leading Managers (2006). Plexus received the AHI/Old Mutual Enterprise of the Year award in 1997 and was also included in the book South Africa's Most Promising Companies (2005).
Prieur is 52 years old and lives with his wife, TV producer and presenter Isabel Verwey, and two children in Welgemoed, Cape Town. His recreational activities include long-distance running, motor cycling and reading. He belongs to the Cape Town Club, Johannesburg Country Club, Gordon's Bay Yacht Club and Swiss Social & Sports Club.
Copyright © 2008-2012 Dr Prieur du Plessis
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