Housing's Last Gasp
-- August 6, 2003

The Mortgage Bankers Association reported today that applications for home purchases jumped last week. But it's not a sign of renewed growth in the housing market. Prospective home buyers are just clamoring to lock in still relatively low rates before they take off higher.

And as rates rise, you can be sure that purchases, and especially refinances, are going to tank. In fact, the overall applications index -- which includes purchases and refinances -- fell to 983.2. That's a whopping 42.2% decline since the middle of June.

No wonder the stock market reacted to this supposedly positive news with a shrug. In fact, the market is downplaying even the most optimistic news lately. For example, the Institute for Supply Management service index's climb to a six-year high was greeted by a market sell-off yesterday.

With good news like growth in the service sector and an increase in housing applications, a healthy market would react accordingly, most likely sending averages higher. But when the market sells off on good news like it did yesterday, it reveals, deep down, that many of the fundamentals in the US are still in lousy shape.

Bottom line: This stock rally is beginning to fall apart.

related article: Mortgage Applications to Buy Homes Jump