It was morning in America yesterday on word that mortgage applications had risen 0.5 percent in the latest week.  Investors lost little time bidding up the shares of some beleaguered homebuilders that we’ll always be thrilled to short at fat prices. And we did -- in the chat room, taking a few bucks out of a shallow sell-off in D.R. Horton before having second thoughts. The stock had rallied off a weak opening and looked vulnerable, but by day’s end its strength had shown some staying power, and the stock ultimately gave back only about 20% of the earlier gains. This suggests that the short-squeeze on homebuilders may still have a ways to go.

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The heart-warming rise in mortgage activity other than defaults can be ascribed to falling mortgage rates. (This is an election year, remember.) We have our doubts that it can last, or that the Fed will succeed in manipulating real estate borrowing to new and untold heights, but we don’t doubt that the easing in mortgage rates can continue for at least a couple of months after the November 7 election.

A Mixed Picture

There was other housing news yesterday, and taken together it yielded a mixed picture with a mildly bullish bias. Existing home sales fell for the sixth straight month, but the level of unsold homes also receded by 2.4%. This implies a backlog of about 7.3 months’ worth of houses,  so if a sign has been sitting on your lawn for a while, don’t expect to be swarmed by bidders any time soon. And while 30-year mortgage rates were down to 6.40 in September from 6.52 in August, they are still a far cry from the 5.77% “giveaway” rate that prevailed in September 2005.

Although the news overall was nothing to celebrate, neither was it so bad as to weigh heavily on a Dow Average that appears bound for at least 13000. We probably won’t be able to stop ourselves from shorting the likes of Beazer and Horton the whole way up, but if we can make a small profit doing so even we are wrong, as was the case yesterday. then where’s the harm?

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