Week ahead: Jump in rates unlikely to derail housing

The nation’s housing market, which was at the epicenter of the financial crisis, will be in focus this week. Existing and new home sales should increase, adding to the momentum seen throughout the year. There was some concern about the real estate recovery after last week’s weaker than expected housing starts report, but most of the decline was related to the volatile multi-family sector. Over the first half of 2013, multi-family starts are up over 33 percent from 2012, and single-family starts are up 20 percent. To put these advances into perspective, at 836,000, housing starts are still 45 percent below the 1.5 million per year average from 1959 through 2000. In other words, we still have a ways to go before things return to “normal”.

Will the increase in mortgage rates snuff out the recovery? The 30-year mortgage rate has risen from 3.6 percent two months ago to 4.7 percent last week. Despite a 3.1 percent decline in the last week of June, applications for new mortgages edged up 0.1 percent from May, and future activity numbers indicate that the housing recovery should remain intact. However, if rates move much higher from where they currently stand, the calculation of renting versus buying may cause some would-be purchasers to keep paying the landlord.

One area of housing that is likely to slow down is price increases. The Case-Shiller 20-City index was up 12 percent from a year ago and in a back to the future moment, RealtyTrac said that home flipping had made a sort-of comeback. The number of homes purchased and subsequently sold again within six months spiked 19 percent in the first half of 2013 from a year ago and by 74 percent from the first half of 2011. The report showed that real estate investors made an average gross profit of about $18,391 on single family home flips in the first half of the year, a 9 percent gross return on the initial purchase price.

However, most housing experts don’t believe that house prices can continue increasing at double-digit rates for too much longer. With more people expected to list homes and higher rates keeping institutional activity muted, the national housing market should remain in recovery, not bubble, mode.

Markets The current bull market is 1593 days old, which is the fifth longest in history according to Bespoke Investment Group.

  • DJIA: 15,543, up 0.5% on week, up 18.6% on year
  • S&P 500: 1692, up 0.7% on week, up 18.6% on year (4th consecutive weekly gain, new closing high)
  • NASDAQ: 3587, down .35% on week, up 18.8% on year
  • 10-Year Treasury yield: 2.49% (from 2.59% a week ago)
  • Aug Crude Oil: $108.05, up 2% on week
  • Dec Gold: $1294, up 1.2 on week
  • AAA Nat'l average price for gallon of regular Gas: $3.67

THE WEEK AHEAD: Earnings, housing and a big vote for Dell…

Mon 7/22:

Kimberly Clark, McDonald’s, Netflix, Texas Instruments

8:30 Chicago Fed Nat’l Activity Index

10:00 Existing Home Sales

Tues 7/23:

AOL, Apple, AT&T, UPS

Weds 7/24:

Boeing, Ford, Caterpillar, Pepsi, Visa

Dell shareholder vote on $24.4B buyout offer

10:00 New Home Sales

Thurs 7/25:

3M, Amazon, GM, Hershey, DR Horton, Pulte, Zynga

8:30 Weekly Jobless Claims

8:30 Durable Goods Orders

Fri 7/26:

9:55 Consumer Sentiment