Borrowing to buy homes is emerging as a catalyst for U.S. stocks to rise, according to Gina Martin Adams, a Wells Fargo & Co. strategist.
“Our favorite indicator of housing markets -- mortgage purchase applications -- has provided a glimmer of hope” for an industry recovery that will lead investors to buy shares, Martin Adams wrote yesterday in a report.
The CHART OF THE DAY compares an application index from the Mortgage Bankers Association with Freddie Mac’s national average percentage rate for 30-year fixed mortgages. Both the gauges are compiled weekly.
Applications have stopped falling along with mortgage rates, as the chart illustrates. In the week before last, the index was 24 percent above a low reached in August even though the 30-year rate dropped to a record.
Signs of a housing rebound may bolster confidence in the prospects for economic growth, wrote Martin Adams, who is based in New York. Investors may then be more willing to take risks of owning stocks.
“Housing still holds the cards” to lift the Standard & Poor’s 500 Index beyond an 8 percent gain this year, she wrote, though a rallying dollar may limit any advance and moves in oil prices may cause stocks to swing. Her year-end estimate for the index is 1,360, or 16 points higher than the average projection of a dozen strategists surveyed by Bloomberg.