Since we’ve been following this saga almost from its beginning, and since we heard today that existing home sales were up in May, we figured we’d round the somewhat-good news out with an updated chart of the TED spread.

The what? The Ted Spread… the basic barometer of how much credit is actually available in the lending market. If you want the full explanation, go here for our prior review of what the TED Spread is. If you’re more of a ‘cut to the chase’ kind of person, here’s the gist - the lower the spread, the more lending that can possibly occur.

Ideally, the spread is less than 100 basis points; in ‘really good’ times, it’s closer to 50 basis points (as it was between 2003 and 2006).

Well folks, charts don’t lie. The current TED Spread is 42.74. Take a look (but keep reading).

Now, you don’t need us to tell you the current spread of 42 basis points isn’t the same as the 42 point spread around 2004 and 2005. Oh, the numbers are the same, but the effect sure isn’t.
That’s not a function of limited access to lendable funds though, and it’s really not even an indication of the ability to lend or borrow.

No, we view the current stifle mostly as an indication of borrower hesitation, and a few layers of new regulation. The spigots are unthawed though… the borrowers will come around sooner than later, because they CAN get financing. It’s not all going to happen by July, however. (When unemployment starts to sink, real estate lending could start to swell. It could start the return trip before that though.)

Now, as for existing home sales, the good news is they were up 2.4% in May, which follows a similar increase in April’s numbers. The bad news is, the average selling price per home was 16.8% lower than it was a year ago. Even that, however, is an improvement…. the figure was approaching 20% during the first quarter.

The media worked hard to put a negative spin on the data, and it’s not like it was the ideal scenario in our view either. It’s something though; it’s the kind of news that can certainly light a fire under the sidelined, would-be buyers we were talking about with the TED Spread discussion.

Frankly, anyone mulling over a home purchase should be less worried about stepping into a declining real estate market, and more worried about the Federal Reserve’s legitimate discussions about raising interest rates. They didn’t do it today, and probably won’t do it next month either. But, Bernanke & Co. appear to be a little more pro-active than the prior regime, and they know leaving rates this low for too long is like playing with fire. It’s still a tad too soon for them to be hawkish yet though.

By the way, there is little to no anecdotal evidence that rising rates actually harm equity prices. Quite the contrary actually - rising rates frequently accompany rising stocks despite the assumptions otherwise. We’ll host that discussion another time though.

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