My Mortgage Blog

Mortgage Market Update 09-03-2013

September 3rd, 2013 5:13 PM by Nick Rapplean

Here are three of the many messages probably conveyed by the downward slide for new home sales over a week ago. But first, a little back-story.

I have held for months to the idea that the sustainable real estate recovery, the one that would take sales back into the stratosphere, would show up first in the new homes sector. Builders, after all, had been decimated by the recession, many of them leaving the business while others waited nervously on the sidelines. Inventories were minimal, and the need for new construction was (and is) obvious. Builders, for once, were in a good position to compete with the existing home market and could exert some control over how many new homes were for sale and, working with in-house lenders, provide the buyer-friendly financing that was evading the existing home market.

So, I sat down with a smile on my face and a big bag of popcorn at the ready, watching for large increases in new home sales volume. And, for a time, the new home market came through. Last month, however, the rug was pulled from under my popcorn.

The number of homes that sold in July, which (annualized) had climbed to (a revised) 455,000 in June plunged to 394,000. And we learned this shortly after the announcement of hike from 56 to 59 in the NAHB Home Market Index, based on a monthly survey of builder optimism levels. A level as high as 59 is rarely reached unless we're in the midst of a boom.

The first thing that comes to mind is that the number of newly-constructed homes that sell each month is computed by the Census Bureau and it is highly subject to revision. I don't know why, really. The number of new homes going into contract is not the most important of the Census Bureau's concerns and, more pertinent, the numbers are probably difficult to gather.

In any case, new home sales data is notoriously volatile. It could even be that the number of homes selling in July will be revised higher, to a level that makes me more comfortable chomping on my popcorn. That idea, however, was made dubious by the fact that April and May's sales were revised in a downward direction, by a total of 62,000.

Okay, the second thing that comes to mind is that the Census Bureau's reported new home sales gives us the number of new home going into purchase contract, not the number of homes going through closings. It's very like the Pending Home Sales Index in this respect. We're focusing on the number of contracts that were written up and signed.

Our attention should be grabbed, therefore, by the fact that the most recent Pending Home Sales Index declined. The July index was down 1.3%, not a huge amount, but certainly not a very positive event for those of us watching for ever-greater improvement in real estate sales. The index suggests that this month's existing home sales are unlikely to climb. And here we are, once again, in a market that is moving more slowly than we thought it was.

And that should be the third thing coming to mind. Try as it might, this marketplace may break into hot flames here and there, but overall, it still isn't capable of burning brightly without, for instance, the support of the Federal Reserve's QE3 program.

In other words, we're still in a slow-as-we-go market, grateful to be going, worried and confused by the slowness.

There are other questions to puzzle out. How great is the pent-up demand, for example, that we (I, at least) though would propel the market into a strong drive to higher ground? Is there, in fact, any reason to listen to the worries of those who believe the real estate markets are likely to slow further this winter? And how, faced with these questions, do we organize our businesses, investments and marketing in the coming months. We'll keep looking for answers that satisfy our curiosities.

Posted in:General

Posted by Nick Rapplean on September 3rd, 2013 5:13 PM

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Mortgage Market Update 09-03-2013

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