Thursday, February 26, 2015

January Existing Home Sales, Mortgage Applications Dip

The Mortgage Corner

Oh, the winter freeze! It seems to put the housing market into a deep freeze, as well. Total existing-home sales, completed transactions that include single-family homes, townhomes, condominiums and co-ops, fell 4.9 percent to a seasonally adjusted annual rate of 4.82 million in January (lowest since last April at 4.75 million) from an upwardly-revised 5.07 million in December, said the NAR. Despite January’s decline, sales are higher by 3.2 percent than a year ago.

Lawrence Yun, NAR chief economist, says the housing market got off to a somewhat disappointing start to begin the year with January closings down throughout the country. “January housing data can be volatile because of seasonal influences, but low housing supply and the ongoing rise in home prices above the pace of inflation appeared to slow sales despite interest rates remaining near historic lows,” he said. “Realtors® are reporting that low rates are attracting potential buyers, but the lack of new and affordable listings is leading some to delay decisions.”

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Graph: Calculated Risk

Better news was that the Chicago Fed National Activity Index (CFNAI) edged up to +0.13 in January from –0.07 in December, with industrial production up. Three of the four broad categories of indicators that make up the index increased from December, and only one of the four categories made a negative contribution to the index in January.

The index is a weighted average of 85 indicators of national economic activity drawn from four broad categories of data: 1) production and income; 2) employment, unemployment, and hours; 3) personal consumption and housing; and 4) sales, orders, and inventories.

Total existing-home inventory at the end of January increased 0.5 percent to 1.87 million existing homes available for sale, but is 0.5 percent lower than a year ago (1.88 million). Unsold inventory is at a 4.7-month supply at the current sales pace – up from 4.4 months in December. The median existing-home price for all housing types in January was $199,600, which is 6.2 percent above January 2014. This marks the 35th consecutive month of year-over-year price gains.

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This follows the Conference Board’s LEI, which slowed to a not-so-strong plus 0.2 percent versus a slightly downward revised plus 0.4 percent in December. Once again the yield spread is the biggest positive for the index reflecting the Fed's near zero rate policy. Consumer expectations are the 2nd largest positive in the month, though one that may reverse in the next report given last week's plunge in the consumer sentiment index. Credit indications, which continue to be very positive in this report, are the 3rd largest positive.

Both indexes show increased employment in 2015, which should mean home sales will pick up with the selling season and better weather in the spring. “Although sales cooled in January, home prices continued solid year-over-year growth,” adds Yun. “The labor market and economy are markedly improved compared to a year ago, which supports stronger buyer demand. The big test for housing will be the impact on affordability once rates rise.”

Real estate is showing more signs of life, with the Case-Shiller Home Price Index rising again. Data released for December 2014 shows a slight uptick in home prices across the country. The S&P/Case-Shiller U.S. National Home Price Index, which covers all nine U.S. census divisions, recorded a 4.6 percent annual gain in December 2014 versus 4.7 percent in November.

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Graph: Calculated Risk

Nine cities reported monthly increases in prices ... Both the 10-City and 20-City Composites saw year-over-year increases in December compared to November. The 10-City Composite gained 4.3 percent year-over-year, up from 4.2 percent in November. The 20-City Composite gained 4.5 percent year-over-year, compared to a 4.3 percent increase in November.

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Graph: US Census Bureau

And lastly, January new-home sales were unchanged, but prices rose. Sales of new single-family houses in January 2015 were at a seasonally adjusted annual rate of 481,000, which is not enough product to keep prices in the affordable range. This is 0.2 percent below the revised December rate of 482,000, but is 5.3 percent above the January 2014 estimate of 457,000.

“In a promising sign, new home sales have been trending at post-recession highs for the past two months,” said NAHB Chief Economist David Crowe. “As the economy strengthens and mortgage rates remain low, we can expect continued upward movement in the housing market this year.”

So still record low interest rates (i.e., 3.50 percent conforming fixed rates) are keeping homebuyer and refinancers interested, but not enthusiastic.   And we believe mortgage rates will remain low, as evidenced by Fed Chairwoman Janet Yellen’s latest congressional testimony, which hinted that said rates could remain low for much of this year.

Harlan Green © 2015

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