This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
EXCLUSIVE OFFER: Jim Cramer's Protégé, Dave Peltier, only buys Stock Under $10 that he thinks could potentially double or triple in the next 6 to 12-months. See what he's trading today with a 14-day FREE pass.

Cramer: Maybe Rates Simply Jumped Too High

NEW YORK (Real Money) -- Maybe interest rates on U.S. Treasuries just went too high to begin with? Maybe the real flaw with our view on interest rates is that, in retrospect, the summer 2013 rise was an overreaction to the potential end of the government's bond-buying -- and that the 10-year should not have gotten as close to 3% yield as it did.

That's probably the most important conclusion that came out about housing in Tuesday's Home Depot (HD) conference call. Given that nobody has a pulse on homeowners, homebuilding and home remodeling like CEO Frank Blake does, I have to take it as gospel that he is right.

We all accept that rates now have a desire to go lower. We have all sorts of different interpretations why that is: supply that's not as big, foreign buying, bigger tax receipts, a slowing demand.

But Blake is the first one to single out the anomaly of the rate rise and how it really crimped one of the great comeback engines of our economy. "Mortgage rates," Blake pointed out, "took a pretty significant jump up in the summer of 2013, and you saw a not-surprising response to that in the housing market." He felt that the other surprise was the "strong housing-price appreciation" notwithstanding that rate increase.

Now, Blake reiterated that housing is still affordable even after this run. He also pointed out that his key metric for sales growth is, indeed, that appreciation -- because people keep spending on their homes as they appreciate, as it is a terrific capital appreciation.

But he also said that the household-formation portion of the home-buying equation still hasn't come back, and people aged 18 to 35 are still staying with their parents in abnormally high numbers. He regards that as a potential pent-up demand.

In other words, Blake is saying: Don't sell your Home Depot stock because of the bad weather. When weather got good, the business came back. People are beginning to spend more money on the two areas that were hardest hit during the recession -- kitchen and window millwork.

Moreover, they haven't even begun to spend as much as Home Depot had budgeted for outside projects. That's coming now. Still, I think the most important takeaway is that the surge in mortgage rates really decked the core businesses of homebuilding and home-buying.

It's ironic that a nonbond guy -- someone in the trenches who is not worried about the polemics of the Federal Reserve or politics or the Tea Party or the deficit and quantitative easing -- just comes to a simple conclusion: Rates just shouldn't have jumped as they did.

Maybe it has taken a year to realize that. Maybe rates are just correcting, and we should stop fretting about the rate decline and accept that rates shouldn't have gotten to those levels they reached, and that it was an overreaction to what was thought to be the consequences of the end of QE.

The only question for me is whether the whole surprising move will be repealed. If that happens, you'll see that the Home Depot sellers will quickly have sellers' remorse -- and, judging by the fund flows, that's exactly what's happening.

At the time of publication, Action Alerts PLUS, which Cramer co-manages as a charitable trust, had no positions in the securities mentioned.

‚ÄčEditor's Note: This article was originally published at 7:14 a.m. EST on Real Money on May 21.

Select the service that is right for you!

COMPARE ALL SERVICES
Action Alerts PLUS
Try it NOW

Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
  • Weekly roundups
TheStreet Quant Ratings
Try it NOW
Only $49.95/yr

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
  • Upgrade/downgrade alerts
Stocks Under $10
Try it NOW

David Peltier, uncovers low dollar stocks with extraordinary upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
  • Weekly roundups
Dividend Stock Advisor
Try it NOW

Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Alerts when market news affect the portfolio
  • Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
Real Money Pro
Try it NOW

All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.

Product Features:
  • Real Money + Doug Kass Plus 15 more Wall Street Pros
  • Intraday commentary & news
  • Ultra-actionable trading ideas
Options Profits
Try it NOW

Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • 100+ monthly options trading ideas
  • Actionable options commentary & news
  • Real-time trading community
  • Options TV
DOW 16,987.51 -61.49 -0.36%
S&P 500 1,985.54 -11.91 -0.60%
NASDAQ 4,567.5980 -24.2080 -0.53%

Our Tweets

Brokerage Partners

Top Rated Stocks Top Rated Funds Top Rated ETFs