Stocks are a bit lower and Mortgage Bonds are a bit higher so far this morning. It’s another relatively quiet economic news day, but CoreLogic did release their Home Price Index for the month of March. The report showed that home prices increased 1.4% from February to March, and 11.1% year over year. The 1.4% move from February to March was pretty impressive. We will see how this continues throughout the year.
Jeff Gundlach, a respected hedge fund manager, gave a presentation yesterday that was very bearish on the housing market. He even made a call to short homebuilders stocks. His bearish outlook stated that single family housing was “overrated” and that New Home Sales and Housing Starts were very disappointing. Gundlach went on to say that the younger age groups are still living at home in greater numbers. As you probably recall, we have been talking about the record numbers of younger individuals still living at home. But unlike Jeff, for whom we do have great respect for, we see this as a future opportunity.
Jeff Gundlach’s comments deserve consideration, but we are not in full agreement. Jeff mentions housing sales are at levels not seen since 1995, but we feel that 1995 was a pretty good time to invest in housing. And speaking of 1995, the percentage of renters is now at its highest level since that year. This also means that the percentage of home ownership has also dropped to its lowest level since 1995. Again we see this abundant crop of renters as future opportunity. We were much more concerned when home ownership reached record highs of 70%, while renters were only 30%, leaving fewer of them to buy. While there is no doubt that affordability levels are not as good as they were over the past two years, the level of affordability is still significantly better than average.
Mortgage Bonds pushed ahead to a new recent high yesterday and are little changed so far this morning. We think that tomorrow’s 10-year Treasury Note Auction will be very influential on the direction of rates ahead. We will see rates improve some!