The evidence is everywhere: Mortgage rates are at a two-year high, applications have fallen for four straight weeks after climbing for more than a year, and Fed Chairman Ben Bernanke says he would have to "push back" if the impact of rising interest rates were jeopardizing the recovery.
As my co-host Jeff Macke and I discusss in the attached video, the question is whether this short-term repulsion is the start of something bigger or simply an understandable reaction to a volatile market.
For those hoping for answers from the bank earnings out this morning, it appears that the jury is still out on that front too. Take JP Morgan's (JPM) second-quarter mortgage originations, for example, which fell 7% from the first quarter yet were still up 12% from a year ago.
As Macke says, even the lenders themselves are at the mercy of the market and loath to guess what the impact will be on housing demand and ultimately, the broader economy.
"In May, the banks had no idea where rates were going, and so they're going to tell us now where they think they're going to go in August," he says, before labeling the highly complex and qualified earnings reports from banks a ''best guess."
While no one doubts that higher rates kill demand and crimp activity, the argument is, at what precise level this hand-braking effect actually kicks in, before being offset by the benefits of stronger economic activity.
I am of the mind that the worst is over and most of the damage has already happened as far as the rise in interest rates is concerned, at least for the foreseeable future. In fact, JPMorgan's CEO has said the bank will not be hurt by rising rates.
Maybe so, but we are now at the point, as Macke says, where we will see if there is "organic demand for housing" and not just buying and borrowing by society's perfect credit set.
"So far the banks have been able to get away with giving loans only to the people who are really highly qualified to get those low numbers," Macke says. "Now we get to see if there is organic, real live homebuyers."
In spite of the recent mortgage data, it would be hard to argue that the bulls have been scared out of their positions in the bank index (^BKX), which has extended its gains by 13% over the past three months at a time when the 10-year Treasury yield (^TNX) rose 50%.
