CROSS-SECTORSECTOR COMMENT 30 JUNE 2015ANALYST CONTACTSBenjamin S. Garber 212-553-4732 Asst Dir-Economist benjamin.garber@moodys.comABOUT CAPITAL MARKETS RESEARCHAnalyses from Moodys Capital Markets Research, Inc. (CMR) focus on explaining signals from the credit and equity markets. The publications address whether market signals, in the opinion of the groups analysts, accurately reflect the risks and investment opportunities associated with issuers and sectors. CMR research thus complements the fundamentally-oriented research offered by Moodys Investors Service (MIS), the rating agency.CMR is part of Moodys Analytics, which is one of the two operating businesses of Moodys Corporation. Moodys Analytics (including CMR) is legally and organizationally separated from Moodys Investors Service and operates on an arms length basis from the ratings business. CMR does not provide investment advisory services or products.View the CMR FAQ Contact the CMR team Follow us on TwitterMoodys Analytics markets and distributes all Moodys Capital Markets Research, Inc. materials. Moodys Capital Markets Research, Inc. is a subsidiary of Moodys Corporation. Moodys Analytics does not provide investment advisory services or products. For further detail, please see the last page.Market CommentLow Rates Needed to Keep Housing on Track The US housing market is ready to seize a sustainable recovery as sales and prices climb to new cycle highs. The latest run-up in activity is aided by expanding mortgage credit, which is stimulating increased demand as cash-paying investors pull back. Yet the lasting effects of the housing bust and the recession leave housing with an inherent fragility that makes it vulnerable to more expensive credit. It is therefore imperative that policies limit the rise of long-term interest rates to the benefit of the housing market and the broader economy.MOODY'S ANALYTICS CROSS-SECTOR2 30 JUNE 2015 MARKET COMMENT : LOW RATES NEEDED TO KEEP HOUSING ON TRACKHome lending is becoming increasingly vital In the aftermath of the housing bust, the traditional lock-step relationship between home sales and demand for mortgages broke down. Now, a direct line is newly evident between mortgage applications for the purchase of a home rising 15% year-over-year in the latest four-week period and Mays eight-year high annualized pace of 5.3 million new and existing single-family home sales (Figure 1). From 1990 through 2006 the correlation between single-family home sales and the MBA index of mortgage applications for home purchases was an airtight 0.98. That connection has been marginal from 2007 through the present with a correlation of just 0.23. In the early stages of the crisis, applications overstated housing activity due to a high rejection rate. In more recent years, sales that bypassed the lending market minimized the role of mortgages in boosting sales. Yet with the share of existing home sales paid for entirely with...
