Wednesday, September 3, 2014

The News only gets better for Housing!

The News Gets Only Better for Housing
Everything is coalescing nicely for a sustainable uptrend.
Last week, we reported that new-home starts and home-builder confidence continued to gain momentum. This week, new-home sales gained momentum, though it might not seem so on first blush. New-home sales for July came in at 412,000 units on an annualized rate. This was slightly below expectations, but sales for June and May were revised higher by a total of 28,000 units. The market is still trending in the right direction.
Lack of inventory has hampered new-home sales over the past year, but that should be less of an issue moving forward. Starts have ramped up, and that's reflected in more inventory. Supply of new homes increased to 205,000 units compared to 197,000 in June, which pulls up the monthly supply to six months at the current sales rate.
Moderating price appreciation will also help sales. The median price of a new home fell 3.7% to $269,800 in July. Year over year, the median price is up only 2.9%.
That year-over-year price gains are slowing is no surprise. The S&P/Case-Shiller Home Price Index has been reporting slower year-over-year gains in recent months. For the latest month, June, Case-Shiller shows the year-over-year increase for its 20-city index slowed to 8.1% versus 9.3% for May. Month over month, prices actually decreased in 13 of the cities Case-Shiller follows.
Slowing price appreciation will bring both new supply to market and increased buyer interest. The former will be less motivated to hold for a higher price; the latter will be motivated to buy into a more stable pricing market.
Existing-home sales are expected to improve in coming months. The Pending Home Sales Index posted a strong 3.3% increase in July. The monthly gain easily exceeded top-end expectation, and points to rising sales through 2014.

We see nothing but better days ahead.
Next Friday, another monthly jobs report will be issued. So far the economy has racked up six-consecutive months of 200,00+ monthly payroll increases. We expected a seventh month when the report for August is released. The consensus estimate is for 223,000 new jobs for the month. We would not be surprised to see more.
Job creation should continue at a brisk pace because the economy is almost certainly on the mend. Gross Domestic Product (GDP) growth was revised this week to 4.2% for the second quarter, up from the original estimate of 4.0%. All signs point to GDP growth maintaining this pace through the third and fourth quarters.
Now all we need is purchase-mortgage activity to trend higher. Perhaps a trend is in the works: Purchase activity was up 3% for the Aug. 22 week.


Date and Time
Construction Spending
Tues., Sept. 2,
10:00 am, ET
1.5% (Increase)
Important. Rising residential construction spending is good for both the housing sector and overall economy.
Mortgage Applications
Wed., Sept. 3,
7:00 am, ET
Important. Purchase activity has picked up in recent weeks. Still, a trend has been difficult to form.
(2nd Quarter 2014)
Thurs., Sept 4,
8:30 am, ET
2.4% (Increase)
Important. Increase productivity is another indicator of an improving economy.
Employment Situation
Fri., Sept. 5,
8:30 am, ET
Unemployment Rate: 6.1%
Payrolls: 223,000 (Increase)
Very Important. Better-than-expected job growth hasn't moved interest rates this year, but the possibility still exists.


How Low Can They Go?
This is really quite extraordinary.
We have strong job growth, accelerating economic growth, the Federal Reserve withdrawing from the Treasury debt and mortgage-backed security markets, and yet mortgage rates continue to fall.'s latest survey shows that the national average on the 30-year fixed-rate mortgage is as low as it has been in the past year. Freddie Mac's survey shows the 30-year loan at a similar low.
We have to confess that we've been wrong on the direction of interest rates this year. But we've been right on the variables that should have lead to higher interest rates: more job growth, more economic growth, less Federal Reserve support. When these variables are factored in, interest rates are supposed to trend higher. Turmoil in Russia and Ukraine could be serving as a counterweight, but these events alone shouldn't keep rates in check.
Low consumer-price inflation – here and in most of the developed world – is likely the overriding variable. Here in the States, we have the potential for an inflation surge, but most of the developed world doesn't. Economies are so intertwined these days that low inflation and low growth in less robust economies could very well be holding inflation in check in the United States.
As for how low mortgage rates can go? We didn't think we had snowballs chance in summer of discussing 4% on the 30-year loan deep into August. But now sub-4% on the 30-year loan is entirely plausible.
Article courtesy of Patti Wilson, American Momentum Bank.

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