In my post yesterday I noted that the rebound in US housing looks increasingly tenuous in the face of the continuing turmoil in the bond markets.
Yields of 10 US Treasury Notes has rebounded strongly during the past few days. Yesterday, 10 year yields recaptured the 26 levels
The result of yesterday’s bond market sell-off?
The US largest residential house builder, DR Horton (DHI) fell off the cliff, down by 8.58%!
This comes even amidst a reported “better-than-expected profit” for the second quarter of 2013. Good “past” news didn’t deter the selloffs on the prospects of sustained elevated higher mortgage rates.
Rising yields also smacked Pulte Homes (PHM) largest homebuilding company hard. PHM essentially collapsed—down by 10.3%!
Lennar Corporation (LEN) the second largest homebuilder has had a better fortune yesterday. The bulk of the early steep losses was recovered. Nonetheless LEN still posted a 1.62% loss.
(charts above from stockcharts.com)
These has important implications
During the 2003-2007 boom phase of the US stock market, the housing downturn preceded the collapse of the S&P 500 by about a year. This has been manifested by the decline in the stock price of DR Horton DHI (leftmost arrow) and eventually the S&P 500 (second or middle arrow).
The same story holds true with Pulte Homes (PHM).
(charts from bigcharts.com)
As in 2006-2007 boom phase, US stock markets may continue to rise, but if the recent downshift in US homebuilders should deepen or intensify, prompted by higher mortgage rates, the lessons of the 2008 US mortgage crisis tells us that such widening divergences would likely spell the Wile E Coyote moment for US stocks in the fullness of time.
Interesting times indeed.
