Inevitably even the grizzlies have been watching economic indicators gauging the housing market "recovery", as talk of a 2009 rebound in the United States has now been confirmed by 3.5% growth in the third quarter. Existing home sales mac miller merch construction spending pulsing and extreme incentives for new buyers have sweetened the potential for a repeat of the 2004 housing recovery we all loved so well. Yet there remains the issue of magnitude, regarding a potential housing recovery, which may contrast that of 2004 a great deal, and could kill the lasting effects of a bottomed housing market on the broader economy. We will attempt to review and assess the American economy by result of the Housing Market from a historical and quantitative standpoint.
Price To Earnings
Twenty four months spanned between the peak 6.5% Federal Funds Rate mid summer 2000 and the screeching halt to 1% in December 2003, where rates would would hover through Independence Day of the following year. Prior to new millennium SP 500 P/Es in the forties and the ensuing share price slashing, one mac miller merch store scroll back to 1961 to sight a Fed Funds Target below 2% and further to 1954 to find the over night rate below 1%. Similarly, we forget that prior to 1995 the SP 500 last carried a P/E ratio greater than 25 in 1930, yet this fundamental statistic remained above 20 for the duration of the previous recession and until October of 2008.
The American Dream Home
Prior to the 2001 downturn there had been sweeping legislation to extend the "American Dream" of owning one's own home to those in lower incomes. Mortgages were generally originated by third party shops and purchased by the GSE Fannie Mae and Freddie Mac mortgage strongholds. Beginning in 1996, the United States mac miller hoodie of Housing and Urban Development (HUD) policy mandated that a minimum percentage of the loan portfolios at Fannie and Freddie be sub-median income products, totaling 52% of all GSE guaranteed mortgages by 2003. The appearance of Alt-A, interest-only, and ARM mortgage products became the bread and butter of "lip-smacking" originators, then passed on and digested into fortune 500 banks' balance sheets, as a Moody's/SP rated package (i.e. CDS MBS instruments).
Housing Recovery 1.0
The first time around, households stopped short of buying new homes until 30-yr fixed rates ratcheted below 6% in January 2003 and remained there, tethered to near 1% Fed Funds rates, until October of 2005. Prior to 2003 30-yr fixed rates were last seen near 5.71% before 1971, where the Freddie Mac data stops, while the New York Times vouched that such low rates hadn't been seen since the early 1960's. Ensuing asset price inflation derived from cheap money and an unquenchable demand for homes brought the economy out of recession with a booming pace, as the resultant vector of growth came founded on consumer spending
