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Analysts Expect Rate Challenges

Concern about rising mortgage rates, in0flationary pressure and home price appreciation have led analysts at CreditSights to assign an "underweight" recommendation to the homebuilding sector's bonds.

"At the end of the day, a harmonious and healthy housing sector would require a relatively low and stable interest rate environment - without the rude impacts of asset inflation and supply-side shocks. This obviously has become a tougher act for the Fed to balance," CreditSights analysts Sarah Rowin and Frank Lee said in a report.

The analysts also say that rising energy prices and higher average hourly earnings seem to imply that further rate increases could be on the horizon.

The market has placed a "negative bias" on the securities of homebuilders, reflecting pessimistic outlooks about macro economic trends affecting the industry, according to CreditSights. Those trends including rising interest rates and declining housing affordability.

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