I’ve been thinking more about housing lately, mostly because I think the move higher in yields has left some of the stocks tied to it far too beaten up. If yields have peaked, or at least stop rising the way they have been, I think there could be a pretty good trade here over the next six months or so.
I’m not going to pretend I’m an expert on the housing market. But I don’t think it takes a rocket scientist to see what the speed of this move in yields has done to a lot of these stocks. They all have their own issues, and some have more than others, but I think rates have been a big part of the beating.
The 10-year went from roughly 4.8% in early September to 5.3% in early October, and has since backed off to around 5.15%.
To me, the bigger issue has been how quickly rates have risen. A 10-year around 5% isn’t particularly unusual by historical standards. The years of near-zero rates and extremely cheap borrowing after 2008 were the unusual part, but we had plenty of time to get used to them.
Plenty of people have made this point already, and I tend to agree: the pace of the adjustment has been a big part of the pain.
It’s hard for businesses, buyers, or investors to get comfortable when financing costs keep climbing and everyone is wondering how much higher they’re going.
That’s why I think there’s a trade here even if rates stay around these levels. After how badly some of these stocks have been beaten down, a stretch of stable or slightly lower yields could be enough to get a decent recovery going over the next six months or so.