Why I'm so freaking bearish on housing ... take 2

Again, a picture is worth a 1,000 words. This is the quarterly housing affordability index produced by the National Association of Realtors. Notice anything funny? Housing hasn't been this unaffordable since the tail end of the 1980s. And that's with interest rates (long-term ones, anyway) not that far off their lows.

My take: This isn't an interest rate story. It's a "rampant speculation + too much easy money = way too high prices" story. Declining rates could help cushion the blow of any housing market downturn. But then again, they might not. Plunging rates couldn't (for a long while) alleviate the massive capacity and inventory overhang of the tech boom and bust, and thereby cure the economy. We needed a fresh bubble in housing to do the trick.

But housing is DIRECTLY impacted by rates, as opposed to tech, which isn't, right? Well, yes. But what if people are just "spent up" on housing? What if the psychology changes (like it appears to be doing) and real estate is no longer viewed as a ticket to endless wealth. Might falling rates NOT spark a new housing run-up?

Let's go to the evidence: For yet ANOTHER week, a decline in mortgage rates (-15 basis points on the 30-year FRM) did NOT prompted a corresponding increase in home purchase activity (-1%), according to Mortgage Bankers Association figures. I talked about this anomaly a few posts back and said it was a "tentative" trend. Now, that trend is going on 7 or 8 weeks.

IF this continues, you're going to start hearing "pushing on a string" talk -- talk that no matter how much rates fall (either short-term rates controlled by the Fed or long-term rates set in the bond market), it won't matter -- buyers just aren't interested in buying any more. I'm not wiling to go that far yet. But you can be darn sure I'm watching these numbers very, very closely.