About That Surge In Building Permits


"At least for 4% coupon Fannie MBS, the average LTV is higher now than during the housing bubble! So much for the story that Fannie and Freddie are "too tight" with mortgage credit.

Now, in terms of credit (FICO) score, Fannie 4% coupon MBS is higher today than during the housing bubble. But it continues to decline."


Importantly, the data clearly shows that to stimulate housing activity it requires ultra-low interest rates and looser credit standards. Given that individuals "buy payments," rather than houses, increases in interest rates have an almost immediate negative impact on housing activity. This is due to individuals being priced out of home buying decisions AND the psychology of "waiting" for rates to fall once again.

With the Federal Reserve now poised to raise rates, and further tighter monetary accommodation, the impact to the housing activity could be more severe than most have anticipated as speculative "buy-to-rent" activity is suppressed. 

One thing is for certain; the housing data needs to be viewed very skeptically. The headline data points are not really telling much of the actual underlying economic story.

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Lance Roberts

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