Doctors > Rate and Economic Update: Home Sales Hit a Wall




 

Keeping you updated on the market!
For the week of

May 29, 2017


MARKET RECAP

Home Sales Hit a Wall

A miasma of ennui appears to have enveloped the housing market over the past month or so, at least if we go by the national numbers. Sales (and starts) have gone south recently after heading north to start 2017.

The unexpected decline in new-home sales induced a spat of brow-furrowing this past week. Sales dropped 11.4% to 569,000 units on an annualized rate in April. The drop counterbalanced the positive sales growth we saw in March and February.

What’s more, meaningful discounting failed to stem the decline. The median price of a new home dropped 3% to $309,200. Year over year, the median price is down 3.8%. If the current sales pace is maintained, we should expect to see more discounting by homebuilders to move inventory, which sufficiently increased last month to push supply up to 5.7 months from 4.9 months in March.

Fortunately, one month does not a trend make. If we look at the sales trend over the past year, we see the monthly sales are up roughly 55,000 units compared to April 2016. If we look back two years, we see monthly sales are up roughly 90,000. The long-term trend remains our friend.

When the disappointing news on new-home sales hit the wires, most market watchers adjusted their expectations for existing-home sales. They were right to do so.

Existing-home sales dropped 2.3% to 5.57 million units on an annualized rate in April. In contrast to homebuilders, though, owners weren’t discounting to move their property. The median price for an existing home actually rose 3.5% month over month to $244,800. Year over year, the median price is up 6%. What’s more, what was offered for sale sold quickly. Days on the market fell to its lowest level since 2011.

Compared to a year ago, existing-home sales are up 1.6%. That might seem insignificant compared to the year-over-year growth in new-home sales, but new-home sales build off a much smaller base. It’s always easier to go from one to two than it is to go from one million to two million.

As for the future, an immediate pick-up in sales is unlikely. Recent mortgage-purchase activity supports this outlook. Activity has slowed in recent weeks. The MBA’s latest report on purchase loans from a national perspective shows applications were down 1% last week (though thanks to the recent drop in mortgage rates, refinances were up  11%).

The news on sales was disappointing, but not all that bad. Market heterogeneity is always a mitigating factor. As we know, all real estate markets are local markets. Aggregate national numbers may or may not apply to any local market.

That said, we were expecting to see something a little better than what we saw in April, especially after reading recent reports on the rising trend of millennials and other first-timers embracing homeownership.

 

Economic

Event

Release
Date and Time
Consensus Analysis

Case-Shiller Home Price Index

(March)

Tues., May 30,

9:00 am, ET

5.5% (Annualized Increase)

Moderately Important. Nothing new here. Home prices nationally continue to appreciate at a mid-single-digit annualized rate.

Pending Home Sales Index

(April)

Wed., May 31,

10:00 am, ET

0.5% (Decrease)

Important. Sluggish contract signings point to sluggish near-term sales growth.

Employment Situation

(May)

Fri., June 2,

8:30 am, ET

Unemployment Rate: 4.4%

Payrolls: 185,000 (Increase)

Important. Job growth remains robust, but not so robust to raise the threat of wage-price inflation.

 

Mortgage Rates Challenge the Lower Bounds

Last week, we pooh-poohed the prospects of the latest political scandal having much impact on financial markets. We should have bitten our tongues, at least for another day or two. The Trump firing of the FBI director and the charges that higher-ups in the Trump presidential campaign secretly met with Russian officials had more impact than we thought. Stock prices and interest rates took a dip as market participants sorted out what’s going on. 

The good news is that the dip in stock prices was brief. Stock prices have mostly recovered. Mortgage rates, on the other hand, continue to linger at lower levels. We’ve talked frequently about the 4%-to-4.25% range the prime 30-year conventional mortgage has held since January. Today, we see quotes at the lower bound of that range… and beyond. Quotes below 4% on a 30-year loan haven’t been all that unusual lately.

But sub-4% quotes could become more unusual in the days ahead. The Trump brouhaha incites less indignation this week than it did last week. As time passes, indignation will further diminish, which means mortgage rates could drift higher to assume the normal range for the year. Sans an outlier event to roil the market, the mortgage quotes we see today are likely as good as it gets for the immediate future.

 

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