Keeping you updated on the market. For the week of June 9, 2014

MARKET RECAP Should We Worry About These Recent Trends? We confess that we don't spend much time worrying. When you think about it pragmatically, what does worrying actually accomplish? Little, really, outside of promoting dyspepsia and sleeplessness. That said, you do need to pause and contemplate what the facts tell you, even if they're not particularly pleasant to contemplate. The facts concerning purchase-mortgage applications aren't worrisome, per se, but they do give us pause. We simply aren't seeing the uptrend in application activity we had hoped to see at this point in the year. Despite the palpable decline in mortgage rates that has occurred in the past six weeks – which has pushed the 30-year fixed-rate loan below our 4.25% floor in many markets – purchase applications still refuse to gain traction. Indeed, the latest data from the Mortgage Bankers Association show applications fell 4% in the May 30 week, which has pushed the year-over-year decline to 15%. With institutional purchases (the large cash market) on the decline, we had expected the individual buyer to pick up the slack. Because the individual is much more likely to finance his purchase with a mortgage, purchase activity should have risen. This has us wondering what new-home and existing-home sales data (at the national level) will show in the coming month. We suspect they won't be especially encouraging. A couple developing trends could lift activity, though. The first is the developing trend in home prices. CoreLogic reports that prices continue to rise, but at a decelerating pace. Excluding distressed sales, prices nationally were up 2.1% month over month in April. Yearly, they're up 10.5%. Excluding distressed sales, the month-over-month change is 1.1%; the year-over-year change is 8.3%. These price gains appear robust, but the rate of appreciation for April is actually the slowest in 14 months. We're not surprised. We've said repeatedly that double-digit year-over-year price appreciation is unsustainable at the national level. After all, over the past three years, home prices have been appreciating at five times the rate of gross domestic product (GDP). What's more, the data have been skewed by strong institutional demand for distressed homes, which have experienced the greatest price gains after the 2009 market crash. The good news is that we're seeing a positive trend in supply. The NAR reports that inventory is up 10.5% year over year in 2014. We expect inventory to continue to increase at the national level. This trend, in turn, should promote sales activity. At the same time, it should further limit home-price appreciation. Of course, all real estate markets are local, but the aggregated local numbers produce a national number. Therefore, some information can be gleaned from glancing at a national number. Slower price growth coupled with rising inventory should lead to more sales in more local markets, which will produce a higher national number. So, no, were not worried. “Frustrated” is the more-accurate state of mind.

 

Economic Indicator	Release Date and Time	Consensus Estimate	Analysis
Wholesale Trade (April)	Tues., June 10, 10:00 am, ET	0.5% (Increase)	Moderately Important. Inventories are lean, but growing, which points to rising consumer activity and confidence.
Mortgage Applications	Wed., June 11, 7:00 am, ET	None	Important. Purchase activity will need to pick up to support higher home sales.
Retail Sales (May)	Thurs., June 12, 8:30 am, ET	0.5% (Increase)	Moderately Important. Rising building-material sales is an encouraging trend for housing
Producer Price Index (May)	Fri., June 13, 8:30 am, ET	0.3% (Increase)	Moderately Important. Producer prices have increased in recent months, but remain non-inflationary.

 

We're Still Not Sold on This Popular Perception The perception is that renting is becoming the option of choice in housing. We were reminded of this perception in a recent MortgageNewsDaily.com article that focused on the findings of a survey conducted by the McArthur Foundation. Our attention was piqued by the finding that renting is becoming more appealing compared to buying. We obviously can't argue with the survey results. But keep in mind that respondents can be lead by how questions are asked and when they are asked. For example, if someone were to ask if you were negative about owning a home right after being laid off, your mood and the question’s negative slant will likely elicit a negative response. Affordability, job security, and the economy are all important variables, to be sure. But fear of loss mobility is possibly the overriding variable. Memories of 2008 and 2009 are still sharp in many people's minds. There are no shortage of tales of someone who bought a home, soon found himself underwater, and was essentially anchored to his home. Speaking of anchors, many potential buyers are still anchored to the perception that if they buy a home, they'll be irrevocably moored to it. They believe the crisis is still upon us. If the perception is removed (and should be removed), we venture that the vast majority of people prefer owning to renting. To those who doubt our perception, simply answer the following question: Do you prefer to live in a neighborhood of owners or renters?