And The Stock Market Says…

…Happy Days Are Here Again.

Well, that might be a bit of an overstatement but not by much. In reaction to the Fannie and Freddie takeovers bank stocks were up today and so were homebuilders. In fact, Toll Brothers (luxury homebuilder) was up 9.4%, reaching its highest level in more than a year. The reason for all the optimism is that some folks are predicting that mortgage rates will drop by a full percentage point in the next week or so as the governement’s actions reduce the risk of funding mortgages. So this would appear to be good news for the housing market.

Could this be the bottom of the housing market? Not so fast!

The fundamental problem is that all this appears to be the very visible hand of the government interfering with the markets and artificially supporting housing prices. It might work for a while but in the end houses must be priced in accordance with fundamental values. And if prices are being propped up for now then it just means that the day of reckoning has been postponed. Either they will ultimately come down or they will stop moving up until fundamental value catches up with prices.

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