Mid-Morning Update: Stocks Rally (Why?) on Another Weak Home Sales Report

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News item: Stocks rally as another weak housing report shows sales of existing homes fell to a four-year low in May.

First the housing numbers: From CNBC: ‘The National Assn. of Realtors said existing home sales in May fell slightly, by 0.3%, to 5.99 million units.... Inventories, however, rose by 5.0% to an 8.9-month supply, the highest since June 1992.’

Why the stock market bounce? Two theories, as you will see they are mutually exclusive.

Theory one: The housing numbers were actually pretty good. Housing may be hitting bottom. ‘I think the numbers were essentially flat and that’s good news,’ one analyst tells CNBC.com. ‘I think we’re seeing a settling of the housing market, and this inventory will eventually clear.’

Theory two: No, stocks are rallying because of a dip in bond yields. Bond yields, in turn, are falling because the housing market -- as evidenced by today’s numbers -- continues to be so weak that the Fed can’t really raise rates. ‘The data still show a lot of weakness so prices are slipping. The inventory levels number was up again, suggesting that probably there will be further (downward) price pressure,’ economist Gary Thayer tells Reuters. ‘It doesn’t look as if there are any signs of a turnaround yet.’

A Trend Worth Noting: Doubling up. Lawrence Yun, NAR senior economist, observes, “Household formation has slowed dramatically since late 2006, implying that many people are doubling-up – they’re adding roommates or moving in with parents.’

Comments? Thoughts?
Photo Credit: Reuters