Highlights

• Existing home sales rose 10.1 percent to an annualized pace of 6.10 million units in October from a month earlier. The annualized home sales in October is now 23.5 percent above its pace from a year ago.
• The three month average for existing home sales is 5.58 million annualized units.
• The Midwest, South, Northeast experienced increases of 14.4 percent, 12.8 percent, and 11.6 percent, respectively; while the West experienced an increase of only 1.3 percent. 
• It was reported that 30 percent of home sales were foreclosure and short sales in October, up from 29 percent posted in September.
• The median home price declined 7.1 percent from a year ago.
• The months’ supply of homes available for sale dropped to 7.0 in October compared to 8.0 in September. 

Highlights

• The housing market index fell by 1 point in October to 18 from a 19 registered in September.
• The October index of 18 is less than 1  point above its 6 month average of 17.2.
• The buyer traffic index fell dramatically to 14 in October from 17 in September.
• Homebuilder expectations over the next 6 months fell 2 points to 27 compared to a September index of 29.

 Source: National Association of Home Builders

Analysis

The housing market index is a leading indicator of future home building and new home sales. The October numbers reflect a deterioration in homebuilder confidence. Although the October index of 18 is 10 points above the cyclical bottom of 8 set in January, homebuilding activity appears to have lost some momentum.  All of the indices in this report are hovering at historic low levels.  A downside to the building industry still remains due to substantial monthly job losses, tight credit conditions and mounting foreclosures.  An excess inventory of homes and the frightful prospect of a sizeable amount of option ARM and interest only resets over the next two years and the pending expiration of the $8,000 first-time homebuyer tax credit are making homebuildersincreasingly nervous. We continue to believe that the homebuilding recovery will be a slow and painful one.

Highlights

• Residential housing construction registered 590,000 units in September, up 0.5 percent from August. Total starts have now been flat since June.
• The 3 month average is 590,000 which has fallen slightly during the past three months.

• The increase in starts were due to primarily to a 3.9 percent rise in single-family starts. Multi-family starts were down 15.2 percent in September.
• Building permits fell 1.2 percent in September to 573,000, which does not portend favorably for future residential construction activity.

Source: Census Bureau

Analysis

The Commerce Department said housing starts rose 0.5 percent in September to an annual rate of 590,000 units compared to a month earlier. The pace of homebuilding in September was 28.2 percent below the 822,000 unit pace established a year ago. All of the increase was due to a 3.9 percent jump in single-family starts which registered 501,000 annualized units in September compared to a month earlier. Single family construction in September is 8.7 percent below its year ago pace. Multifamily (apartments) construction fell 15.2 percent last month to an annualized 479,000 unit pace. Housing permits fell 1.2 percent in September from a month earlier. Housing permits are usually a reliable indicator of future residential construction activity.

This report is particularly troubling to industry observers because new information indicates that homebuilding activity may be losing momentum. Housing starts in August were revised sharply downward to 587,000 compared to a previously reported 598,000. Since June, new homebuilding activity has been flat, hovering at the 590,000 annualized starts mark. Although building permits were down 1.2 percent in September from a month earlier, single-family permits were down 3 percent from a month ago. Housing permit data does not portend favorably for future new home construction.

Multi-family construction activity has been volatile in recent months, rising almost 21 percent in August from a month earlier and then falling over 15 percent in September. The commercial real estate sector has been struggling in recent months and is not providing favorable conditions for new multi-family construction. Multi-family vacancies are on the rise, while rents are on the decline.

In other housing news, the National Association of Home Builders, NAHB, reported that its housing market index fell to 18 in October compared with an index value of 19 in September. The index is considered a leading indicator of home building activity. The slight monthly dip is consistent with the notion that homebuilding activity seems to have stalled. It is likely that homebuilders are less sanguine about the future because they are nervous about the likelihood of Congress extending the $8,000 homebuyer tax credit which is expiring at the end of November. Homebuilders may also be jittery about the slight monthly decline in existing home sales posted in September, fearing that sales of new homes may slow in the coming months.

Builders have other reasons to worry about their industry. The market is expecting a meaningful rise in foreclosure filings over the next several years due to planned rate resets on option ARM and interest only mortgage loans. A rise in foreclosures promises to increase the supply of existing homes which, in turn, inhibits new home building. Further, the economy continues to shed thousands of jobs on a monthly basis, inhibiting housing demand.

Highlights

• The pending home sales index rose 6.4 percent in August to 103.8, compared to 97.6 in July.
• The pending home sales index rose 12.3 percent from a year ago.
• All four regions reported increases: the West, Northeast, Midwest and South posted increases of 16.0 percent, 8.3 percent, 3.1 percent and 0.8 percent, respectively.

 Source: National Association of Realtors; index is seasonally adjusted

Analysis

The index of pending home sales reported by the National Association of Realtors, climbed 6.4 percent in August compared to the previous month. The surge in sales contracts on existing homes in August was the highest monthly pace of contracts this year; and also was the seventh consecutive monthly gain in the index. The pending sales index is now 12.4 percent above the index registered in August 2008. The large jump in the index exceeded economists’ expectations as represented by a panel of analysts surveyed by Briefing.com that had a forecast of a 1 percent rise in the index.

Pending home sales are contract signings, not closings, and thus considered a leading indicator of existing home sales which are closings. The ramp up in home sales contracts over the past several months can be partially attributed to the $8,000 first-time homebuyer tax credit which is set to expire November 30.  It  is likely that a meaningful number of first-time buyers are hurrying to sign contract to purchase homes before the $8,000 tax credit expires at the end of next month.

Last week, the NAR reported in another report that existing home sales in August fell 2.7 percent from the previous month which brings into question the accuracy of the pending home sales index as a reliable indicator of future home sales. Many economists agree that the fallout rate-the rate at which contract signings never reach the closing stage-has increased markedly in recent months and probably explains the discrepancy between contracts and closings.  Some of the households that sign a sales contract may not be able to obtain a mortgage to close the deal due to stricter credit underwriting standards. The NAR also cites that there continues to be problems in the new appraisal rules which are making it difficult for some deals to satisfy the loan-to-value ratios required by underwriters.

Nevertheless, the surge in pending sales contract volume in recent months indicates that buyers are coming back to the home buying marketplace. They are signing contracts, but not all of them actually close. The favorable news in the pending home sales report bodes well for future existing home sales activity. Combined with other recent favorable housing reports over the past several months, strengthens the notion that the housing sector is firmly on a recovery trajectory, at least from a sales perspective.

Highlights

• Mortgage rates fell in the week ending October 8, compared to the previous week with the exception of the 1-yr ARM.
• The 30-year mortgage rate dropped 7 basis points to 4.87 percent compared to a week ago, while the 1-year adjustable mortgage rate rose 4 basis points  to 4.53 percent compared to a week ago.
• The 30-year mortgage rate is now 20 basis points below its month ago levels.

 Source: Freddie Mac

Analysis

The 30-year fixed-rate mortgage averaged 4.87 percent for the week of October 8, down from a 4.94 percent rate posted one week earlier according to Freddie Mac’s weekly primary mortgage market survey.  The long-term mortgage rate is almost 1 percentage lower than the 5.94 percent 30-year mortgage posted a year ago. The popular mortgage rate is now comfortably below the 5 percent watermark and is approaching record territory.

 The survey also reported that the 15-year fixed-rate mortgage averaged 4.33 percent for the current week down from last week when it averaged 4.36 percent. This is the lowest the 15-year fixed-rate mortgage has been since Freddie Mac began following it in 1991.  The 1-year adjustable-rate mortgage rose slightly to 4.53 percent in this week’s survey compared to a 4.49 percent rate in last week’s survey.

 Long term mortgage rates continue to fall;  30-year fixed-rate loans were the lowest since mid-May.  Historically low mortgage rates are keeping homes affordable and are enticing first-time homebuyers to purchase homes. Affordability measures have been hovering near record levels all year long. And it is clear that very low mortgage rates are driving mortgage demand. A weekly survey conducted by the Mortgage Bankers Association released on Wednesday, reported that in the week ending October 2, mortgage applications climbed to a 19-week high. More importantly for future home sales, applications for home purchases were at the highest pace since the beginning of the year.

This week’s mortgage rate survey is further evidence that the Federal Reserve continues to apply downward pressure on interest rates. In its September 23rd policy statement, the central bank indicated that it plans to keep its benchmark interest rate exceptionally low for an extended period. This bodes well for the direction of future mortgage rates and the mortgage and housing industries.

Highlights

• The composite index finished the week ending October 2 at 756.3, up 16.4 percent from the previous week.
• The purchase index finished the week at 306.1, up 13.2 percent from a week earlier, while the refi index finished the week at 3,377.1, up 18.2 percent from a week earlier.
• Purchase applications accounted for 33.7 percent of all applications, an decrease from the week before.

 Source: Mortgage Bankers Association

Analysis

A weekly survey conducted by the Mortgage Bankers Association reported that in the week ending October 2, mortgage applications to refinance rose 18.2 percent from a week ago, while mortgage applications to purchase homes rose 13.2 percent from the prior week. The weekly survey suggests that households are responding to falling mortgage rates and are applying for more mortgage loans due to lower rates. The survey reported that 30-year mortgage rates finished the week at 4.89 percent compared to a 4.94 percent rate a week earlier. The one-year adjustable rate mortgage rose and finished the week at 6.56 percent compared to a 6.40 percent rate a week ago. However, ARM application accounted for only 6.1 percent of total applications. The survey also reported that refinance applications comprised 66.3 percent of all mortgage applications, while purchase applications accounted for 33.7 percent.

The rise in mortgage applications in the latest week was cheered this morning by the housing markets. The 13.2 percent rise in purchase applications for the week portends favorably for future home sales. Historically, mortgage applications have been a reliable indicator of future home sales activity. Purchase application volume has been trending upward since the beginning of the year. Today’s housing news is one more piece of evidence that the nation’s housing sector is stabilizing and on the road to recovery. However, optimism is somewhat tempered because many housing analysts believe that a percentage of purchase applications may have been pushed forward by households anticipating the November 30 expiration date of the homebuyer tax credit.

The surge in refinancing applications reflects homeowners’ attempts to lower monthly mortgage payments by refinancing into lower rate mortgage loans. The increased volume was welcomed news for mortgage lenders.

Looking forward the housing market continues to face serious obstacles. Future home sales could slow if the federal homebuyer tax credit is permitted to expire in November. During the past six months, the $8,000 tax credit provided a meaningful financial incentive for first-time buyers to purchase homes. Most industry observers are worried that if the credit is lifted, first-time home buying activity will slow. Home buying could also slow because of an expected rise in foreclosure filings. Economists and industry analysts are projecting a significant increase in foreclosures due to planned rate resets on option ARM and interest only mortgage loans over the next several years. More foreclosures would add to an already excess supply of existing homes, exerting downward pressure on home values. Falling home prices could encourage households to postpone home purchases. No one wants to purchase a home, only to see its price drop further after the closing.

Continued job losses remain a serious threat to home sales. Although the labor market has recently shown signs of rebounding, the economy continues to shed jobs every month, discouraging households for purchasing homes. It is not surprising that families that are worried about their job situation are not willing to commit to a large financial purchase.

Highlights

• The Case-Shiller 10-city index fell 12.8 percent in July compared to a year earlier.
• The Case-Shiller 20-city index fell 13.3 percent in July compared to a year earlier.
• All of the 20 metros reported annual rates of decline.

Source: Standard & Poors

Analysis

Home values, as measured by the popular S&P Case-Shiller home price index of 20 cities rose 1.6 percent in July from a month earlier. Home prices also rose in June and May on a month over month basis. The three-month steady improvement in home values indicates that the housing markets may be stabilizing. Home prices were down 13.3 percent compared to July 2008. Although home values fell from a year ago, the rate of decrease was slower than the 15.4 percent annual decline registered in June.  Similarly, the Case-Shiller 10-city index fell 12.8 percent. The Case-Shiller home price 20-city index has tumbled 30.6 percent from its 2007 peak.

The home price report was welcomed news to the housing markets. The pace of annual decline in home values continues to decelerate. And even more encouraging is that  the markets have experienced steady modest monthly increases in the 20 cities represented in the index.  

The Case-Shiller home price index is considered a more accurate measure of home price changes compared to the National Association of Realtors median home prices which can be skewed by changes in the mix of homes sold during the period. The Case-Shiller index measures the change in sales price of a particular home to its price the last time it was sold.

The Case-Shiller 20-city home price index for July exceeded expectations of most market experts. A panel of industry experts surveyed by Briefing.com had forecast a 14.2 percent year over year price decline, compared to the reported 13.3 percent.Recent home price improvements are primarily due to modest, but steady, monthly increases in existing and new home sales over the past six months. In addition, existing and new home inventory levels have dropped considerably, relieving some downward home price pressures.

 Looking forward, most housing economists remain cautious. An expected increase in foreclosure filings due to rate resets on option ARM and interest only mortgage loans threaten to exert downward pressure on home values. Foreclosures usually sell at 15 to 20 percent discounts compared to traditional home sales. Further, the housing pundits also worry about the elimination of the $8,000 home purchase tax credit, which also could reduce the number of future home sales.

Highlights

• New home sales rose 0.7 percent in August to an annualized 429,000 units compared to 426,000 annualized units posted in July.
• The modest increase in sales was welcome news. New home sales were mixed by region. The sales in the Northeast and Midwest declined by 16.3 percent and 5.8 percent, respectively, while sales in the South were flat and sales in the West rose by only 12.1 percent.
• The months supply fell to 7.3 in August from 7.6 in July.
• The median new home sales price was down 11.5 percent compared to a year ago.

Source: Census Bureau; median home price not seasonally adjusted

Analysis

Sales of new homes rose in August to the highest level since September 2008, a government report said Friday. New home sales increased 0.7 percent to a 429,000 annual pace in August the Commerce Department reported. The August pace was above the 426,000 annual pace registered in July. New home sales for the month were down 3.4 percent from a year ago.

 Sales of new homes were not broad-based across the nation. New home sales were up 12.1 percent in the West, and unchanged in the South, while sales were down 5.8 percent and 16.3 percent in the Midwest and Northeast, respectively. The median price of a new home fell 9.5 percent from a month earlier, the largest decline in monthly home prices since the government began collecting data on new home activity. The median new home price was down 11.6 percent from a year ago.

 The government reported that the months’ supply of new homes fell to 7.3 in August, compared to 7.6 months posted in July. Homebuilder inventory fell to 262,000 homes on the market in August, the fewest new homes available for sale since November 1992. It is clear from the supply numbers that home builders are reluctant to begin new construction amid all of the uncertainties surrounding the economy and housing markets. Builders are particularly worried about whether the $8,000 home purchase tax credit which is set to expire at the end of November will be extended. Housing analysts believe that many home buyers purchased new homes during the past several months in anticipation of the tax credit expiring.  Most housing organizations, including the National Association of Home Builders, have lobbied heavily to extend the credit.

On balance, the new homes report offered favorable news for the housing industry. Sales were up, inventories were down and year over year home price depreciation is slowing. The modest, but positive monthly trend in new home sales strongly suggests that the new homes market has rebounded from its January cyclical lows. The new homes report combined with recent existing home sales and housing starts reports indicate that the housing correction is over. However, all of the reports also indicate that the housing recovery will be a slow and modest one.

Highlights

• Existing home sales fell 2.7 percent to an annualized pace of 5.10 million in August. The annualized home sales in August is now 3.5 percent above its pace from a year ago.
• August’s sales pace is equal to 3 month average of 5.10 million units.
• The Midwest, South, and Northeast experienced decreases of 6.7 percent, 3.1 percent and 2.2 percent, respectively, while the West experienced an increase of 2.7 percent. 
• It was reported that 31 percent of home sales were foreclosure and short sales in August, no change from July.
• The median home price declined 12.5 percent from a year ago.
• The months’ supply of homes available for sale dropped to 8.5 compared to 9.3 in July. 

Highlights

• The housing market index rose by 1 point in September to 19 from a 18 registered in August.
• The September index of 19 is 2 points above the 17 registered in September of 2008.
• The buyer traffic index rose slightly to 17 in September from 16 in August.
• Homebuilder expectations over the next 6 months fell 1 point to 29 compared to a August index of 30.

 Source: National Association of Home Builders

Analysis

The housing market index is a leading indicator of future new home sales. The September numbers reflect a slight upward trend in the homebuilding industry. The September index of 19 is now 11 points above the cyclical bottom of 8 set in January.  However, the September index remains at a relatively low level and a downside still remains due to the economic recession, mounting job losses, tight credit conditions and mounting foreclosures.  An excess inventory of homes and the frightful prospect of a sizeable amount of option ARM and interest only resets over the next two years are keeping builder optimism at bay. We continue to believe that the homebuilding recovery will be a slow and painful one.