Can Housing Keep the Market High with...
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Jonathan Yates
Can Housing Keep the Market High with the Federal Reserve Buying Fewer Treasuries?

While there has been concerns about stocks being ready for a tumble, the housing market continues to perform very well.  For the most recent numbers, new home sales were at 454,000 last month.  Existing home sales checked in at an annual clip of 4.97 million.Yes, we’ll get to the stock market in a second. First I wanted to give you some perspective on the housing market that I know the media didn’t give you.

This represents a a multi-year high for new home sales, which is reinforced by how well homebuilder (NYSE: XHB) stocks have performed.  The XHB, the exchange traded fund for the home building sector, is higher by almost 60% for the last 52 weeks.  For 2013, it is higher by 19.60%.

In the marketplace, existing homes sales hovered around the 5.0 million mark.  While there are those talking about a housing bubble, it is still under the levels before The Great Recession.  In addition, investors are starting to return to the real estate sector, too.

For equities, all three markets were off today, due to confusion from the Federal Reserve and its programs of buying Treasury bonds and mortgage backed securities through inflating its balance sheet, as it has been doing since 2007.

Even more concerning is that the bullish sentiment is overwhelmed by bearish sentiment.  This should not be.  There was a recent CBO report that the Federal budget deficit will come in at $669 billion for fiscal year 2013.  As the Federal Reserve is on a clip to buy about a trillion in Treasuries and mortgage backed securities, there is excess buying power being produced.  In addition, the Federal Reserve has been returning about $100 billion in profits to the Treasury, too, each year.

Hopefully, this will be processed by the market the next time the Federal Reserve mentions trimming back its Treasury bond purchases.  The US budget deficit is decreasing, so there is not the need for as much bond buying.  That should be recognized as a strength for the American economy, not a weakness.


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