February 27th, 2014 4:56 PM by Nick Rapplean
The topic today could be summarized by the title of an aging concert movie by David Byrne and The Talking Heads. The title is "Stop Making Sense."
Why? If the market ever makes sense, and it sometimes moves in that direction, it often pulls the carpet out from under our intellectual feet, leaving us sprawled across the landscape like a herd of lemmings.
Here's the challenge from the markets this week. First, those of us trying to make sense of the markets current direction were served a dollop of confusion in the form of a 3-basis point rate rise this past week. Now, that's not a life-changing event, but it can persuade borrowers to wait, rather than to jump into a refinancing of their existing loans. Refinancing, after all, is usually about cutting interest expenses in your borrowing.
But these 3 basis points surely can't explain an 11% decline in the number of new refinancing loans applied for in the week ending February 21st. Neither can the weather that made it so difficult to get out, meet with people, and do business. There is something going on her that runs deeper than freezing snow, wind, and automobile collisions. The trouble is that we don't know what it is.
It's been going on for awhile. Purchase money loans are languishing too. Year-over-year, the Mortgage Bankers' Association index of new purchase money loan applications is down a remarkable 15%. That means, by the way, our real estate market is still in a virtual dependency on cash buyers. Thirty-three percent of all January existing home transactions were all cash, as against 32% in December. First-time buyers made up 26% of the purchases, a point below where they were in December.
The data on existing sales? Month-to-month, the sales were down 5.1%. Year-to-year, they were down by the same amount. This doesn't sound like a market that is learning to stand on its own two feet and it certainly doesn’t sound like a recovering child that is learning to run once again.
It gets oddly worse, though.
After the market's exercise in stop making sense, around the time when we'd come to dread the next set of numbers, we got the data for new home sales, and surprise! There was a spike in the number of sales.
9.6% more new home sales in January than in the prior month with a bit of icing on the cake--a 13,000-sale upward revision to the initially-reported December data.
Questions abound. Did terrible weather have more effect on existing home sales than on new home sales? Is it so much easier to go out and look at new homes in one snow-driven tract than it is to look at existing homes all over town? Is the Census Bureau giving us numbers it will soon revise? Is there some strange reason that new homes are suddenly more attractive to potential buyers than existing homes?
It's a mystery, real estate fans, and my partner named Watson and I intend to get to the bottom of it. There is either a lot to learn here or--what can we say? The markets are jerking us around and enjoying every minute of it.