Jim Cramer: 'Wind Has Come Out of the Sails' in Housing Market

Friday, 28 Jun 2013 08:11 AM

By Michael Kling

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Some experts believe higher mortgage rates will throw cold water on the hot housing recovery.

Higher mortgage rates will give pause to potential homebuyers, said CNBC's Jim Cramer, calling the spike in interest rates "monumental."

Rates for 30-year fixed-rate mortgages jumped from 4.17 percent to 4.46 percent, the highest since August 2011, following the Federal Reserve's announcement last Wednesday that it could start tapering its asset purchases later this year, the Mortgage Bankers Association reported.

Editor's Note:
 
Economist Warns: ‘Money From Heaven a Path to Hell.’ See Evidence.

Mortgage rates increased by the most in a single week since 2011, and refinance application volume dropped to its lowest level in almost two years.

"I look at that number and I'm just saying 'I got to wait until it comes down.' I'm not going to buy a house this week, because it's relative," Cramer said.

"We all remember 7 percent; my first mortgage was 9 percent. There's another group of people that say 'whoa, that went too high, I got to wait until it comes down,' but maybe it doesn't."

Higher mortgage rates have hurt stocks of homebuilders, Cramer noted, citing Lennar, which dropped 3.71 percent one day.

"The reversal in Lennar ... was breathtaking," he said. "I think it's daunting. I think those stocks are down for a reason. These stocks are momentum stocks. The wind has come out of the sails."

The good news is that higher rates will cool an emerging bubble in the housing market, according to Cramer. Home prices rose 12.1 percent in April over the previous year, according to the Standard & Poor's/Case-Shiller Housing Index.

"Prices went up too fast," Cramer explained. "I think if you're [Federal Reserve Chairman Ben] Bernanke, you say 'good' because maybe it cools off a little. It's a good thing it's happening. Let it cool off, it got too hot. It was about to become a bubble, let it cool off."

Housing experts disagree on how increasing rates will impact home sales.

Some banks have eased their lending requirements, which will help support the housing recovery, said David Blitzer, chairman of the S&P index committee, USA Today reported. In addition, more homebuyers could opt for lower adjustable-rate loans.

Rising rates could increase home sales by encouraging people to buy homes before rates rise even more, Stew Larsen, executive vice president of Bank of the West, told USA Today.

Editor's Note: Economist Warns: ‘Money From Heaven a Path to Hell.’ See Evidence.

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