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August 22, 2009

Something Big Around the Corner?
by Marty Chenard

Interest rates ... housing demand ... housing affordability ... bank loans ...

Headline confusion? ... Here are the current housing related headlines on a Yahoo news search:

Headlines: U.S. existing home sales seen at 10-month high in July. ... Home sales figures level off in July. ... Sales of Existing U.S. Homes Probably Climbed as Prices Fell. ... New-home construction unexpectedly declined last month. ... Mortgage Delinquencies Rise as U.S. Home Prices Fall. ...

It doesn't really look like anyone agrees with what is happening in the housing market.

How about trying to look forward relative to housing affordability? Interest rates have a huge impact on what someone can afford. After all, it is all about how much of a monthly payment most people can pay.

30 year and 10 year yields both are part of the equation of how 30 year mortgage rates are set. Rates are pretty good right now ... 5% and 1 point at some banks.

So, what's in the future for interest rates?

Something big is around the corner ... a large move in the interest rates. At least, that is what the 10 year yield chart is telling us now.

Take a moment to look at the (TNX) 10 year yield chart. A very large triangular formation has occurred. It started in May and it is now working its way to its apex where a breakout will occur.

From a technical projection standpoint, a 9 point move should occur from the breakout point ... up or down. That is a very large move and it will have an impact on housing, automobiles, and anything requiring a loan. And yes ... it will also have an impact on the stock market.

The question is whether the breakout will be up or down?

For the past few months, the Fed has been actively engaged in the market and buying down rates in an effort to feed/nurse an economic recovery. But, this week, Bernanke announced that the Fed would stop their interest rate buy down program by the end of October.

If this market influence is removed, it would seem reasonable to expect interest rates to rise without that dampening influence. If rising interest rates is the direction that could happen, then the affect on the housing market and large financed purchases will be very negative because of the projected magnitude of the interest rate rise.

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Marty Chenard
StockTiming.com
Asheville, NC 28805
Tel: 828-296-1200

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