My Mortgage Blog

The economic numbers over the past week were fairly uninspiring. A 1.5% decline in the number of sales of existing homes was disappointing, as were the slightly larger numbers for people seeking new unemployment claims.

It feels like another blah week, with the economic data treading water for the most part, though interest rates declined a bit more (the Freddie Mac weekly average for the 30-year FRM is truly scraping the bottom of the known world). The dollar looked good, unsurprisingly, against most other currencies. It is, after all, the haven of choice for most investors across the planet.

And the fear factor is no longer pushing the price of gold or oil higher. Both are suffering from the possibility that the world economy may slow significantly. Investors, therefore, seek liquidity with their safety, and worry that something like oil will fall into a tailspin as major economies produce less demand for fuel.

Okay—but there is one set of numbers that intrigue this observer. The number of sales of newly-constructed homes in May shot up by 7.9%. This is dazzling, especially when you consider how abysmal the new homes data has been for years. It’s the most new homes to sell in a month in about two years. And it’s accompanied by very low inventory numbers (the time to sell current inventory is estimated at 4.7 months!).

Why, you may rightly wonder, are things looking up in the new homes department (if indeed this becomes a trend)?

There are a lot of possibilities that some of us have been following for quite a while:

1. The heart of the real estate market today is smaller, newer, more energy-efficient homes. They are particularly desirable to new retirees (Baby Boomers want homes that work more efficiently and that they can lock up whenever they want to go on a trip. They also involve high priorities for first-time buyers, who have generally shown a desire to work with a smaller home and lighter energy requirements. It turns out, in other words, that newer/smaller homes are desirable to the core of today’s buying public.

2. New features, especially energy-efficiency hardware and software, are being built into new homes. It is more expensive to retrofit them into older, existing homes.

3. There aren’t many new homes available today—a problem that brings Will Rogers vaguely to mind. They just haven’t been building many homes for the past seven or eight years. Builders are going to have to catch up. If they play their cards right, they may at last profit greatly from the Great Inventory Repair that may be coming.

Now, these aspects of the new home market have been much in evidence to institutional investors for quite some time. A lot of money has been made in shares of builder stocks, which have done very well for over a year. A lot of money is being made in builder bonds.

And, very likely, more and more money will be made in other areas of the new homes market. There is much to watch closely here—and we’ll be doing so and writing about what we see in the coming weeks and months.