My Mortgage Blog

If we look closely while seeking out signs of where the real estate market may be going over the longer term, we find a great deal of confusion mixed in with the positive recent signals the market has been sending.

Clearly, there are areas where the market has regained vitiality. As Steve Cook wrote in a recent issue of the Niche Report, “California markets dominate the list of areas experiencing the largest year-over-year increases in their median list prices.  In addition, Phoenix, AZ, Boise City, ID, West Palm Beach, FL, Seattle, WA, and Fort Myers, FL appear in the list of top performers.” Along with listing prices, selling prices in these areas have been firming, with all the appearances of a sustainable real estate recovery…except, alas, adequate inventory.

But economists and business leaders warn us not to trust this market activity too completely. It still has its ups and downs, and there are areas of the nation that remain in a slump. The CEO of Home Depot, for example, predicted that we won’t see a “true recovery” for another two years.

Nonetheless, it is difficult not to respond to certain economic indicators with undisguised glee. For example, the National Home Builder Association today disclosed another advance in its Housing Market Index. The index, which stood at 16 a mere year ago, is compiled by phone surveys of major builders, who put numbers to their enthusiasm—or lack thereof—about current conditions in the New Home market. What we end up with here is a sense of how optimistic the industry leaders are.

At 16, the answer was, “not optimistic at all.” This is an index which, like the ISM readings of the manufacturing sector, predicts a positive near-term future as the number approaches and exceeds 50. Anything below that technically indicates contraction. So today’s reading of 41, while far above 16, still doesn’t give us a truly positive reading—if we play by the mathematical rules. But let’s not.

Looking at the “traffic” component of the index—in which builders indicate how many people are coming to see their developments—this particular segment of the index resulted in a 35, which is the highest reading since 2006. All numbers are relative here, and this month’s readings are very good.

We will see other important indicators over the coming three days, too. On Wednesday, the number of mortgage applications relative to recent weeks will be released. It should provide a feet-on-the-ground sense of what has really been happening in the real estate market. We’ll also see whether the number of new housing starts advanced in September, and whether the number of permits taken out for future starts increased. The next Index of Leading Indicators, providing a rough idea of how well the overall economy is faring and should fare in the coming months, is published Thursday. And Friday, we’ll see the number of Existing Home sales that closed in September.

A week of reckoning, in a sense.

As I said, though, the current movements of these indicators are hard to understand. The last set of employment figures was preceded by hints that employment data would be better than they turned out to be. Kind of a statistical bait-and-switch that can turn the stomach of an avid investor.

But even if it’s true that we may have to wait two years for a fully-recovered real estate marketplace, it does appear that we’ll continue to see gradual improvements over that time period.

So while it isn't time to break out the bubbly, it does appear to be a market with increasing prospects of profitability.