Interest Rate Roundup

Monday, July 26, 2010

New home sales bounce in June

We just got data on new home sales for June. Here's what the figures looked like:

* New home sales rose 23.6% to a seasonally adjusted annual rate of 330,000. That topped the average estimate of 310,000 units. Sounds like a big rise ... until you see that the previous month's sales were revised sharply lower to 267,000. A net 62,000 homes were actually lopped off the sales tally for the past three months, and the June number was still the second-worst reading on record.

* Regionally, sales were up in three out of four locations. The Northeast showed the biggest gain at 46.4%, followed by the South at 33.1%. Sales rose 20.5% in the Midwest, but dropped 6.6% in the West.

* The number of homes for sale dipped to 210,000 from 213,000 in May. That's the lowest level in any month going all the way back to September 1968. The months supply at current sales pace indicator of inventory slipped to 7.6 from 9.6. The median price of a new home slipped 1.4% to $213,400 from $216,400 in May.

New home sales picked up a bit in June. But it was still the second-worst month in U.S. history. Moreover, revisions to previous reports show home sales have been running at even more depressed levels than we thought. That makes it hard to get too excited about these figures.

If there's a bright spot, it's that new home inventories remain extraordinarily lean. We have fewer houses looking for buyers than we've had at any point in the last 42 years. But even that ostensibly good news comes with an asterisk. Because we have so much competition from the distressed, "used" home market, home builders aren't able to ramp up pricing in response. All in, I expect the housing market to remain challenging for some time, especially given the ongoing weakness we're seeing in the labor market.

Thursday, July 22, 2010

Existing home sales drop 5.1% in June

We just received existing home sales data for June. Here's what the numbers looked like:

* Existing home sales fell 5.1% to a seasonally adjusted annual rate of 5.37 million in June from 5.66 million in May. That was moderately better than forecasts for a sales rate of 5.1 million.

* Regionally, sales fell in the majority of the country. They dropped 6.5% in the South, fell 7.5% in the Midwest, and tanked 9.3% in the West. Sales rose 7.9% in the Northeast. By property type, single family sales dropped 5.6% while condo and coop sales slipped 1.5%.

* The raw number of homes for sale rose 2.5% to 3.992 million from 3.893 million in May. That was also up 4.7% from year-ago levels. The months supply at current sales pace indicator of inventory shot up to 8.9 from 8.3, led by deterioration in the single family market. Median prices rose 5.2% to $183,700 from $174,600 a month earlier. They're up 1% from the year-ago level.

The housing market continues to struggle in the wake of the tax credit expiration. Sales fell in most of the country in June, while the inventory of homes on the market rose. Home prices were roughly unchanged from year-ago levels, but pricing tends to lag other indicators when conditions head south. Another bout of home price deterioration appears likely, though it'll be much more gradual than what we've seen to date.

I've said it before and I'll say it again: The labor market is absolutely key to the health of housing. Bargains abound in the residential real estate market. But many buyers lack the confidence or the income to take advantage of them. Fed Chairman Ben Bernanke recently forecast a lengthy period of high unemployment. I can't argue with that outlook, and that's why I'm not looking for a robust housing recovery.

Tuesday, July 20, 2010

Housing starts slump, permits perk up

Housing starts figures for June were just released. Here's what they looked like ...

Housing starts dropped 5% to a seasonally adjusted annual rate of 549,000 from 578,000 in May. That's also down 5.8% from 583,000 in the year-ago month, and it leaves starts at their lowest level since October. Single family starts slipped 0.7% from May and 4.6% from the year-ago level, leaving them at a 13-month low. On a regional basis, starts fell across the board -- with declines of 2.4% in the South, 5.9% in the West, 6.9% in the Midwest, and 11.3% in the Northeast.

Meanwhile, building permits popped 2.1% to a seasonally adjusted annual rate of 586,000 in June from a revised 574,000 in May. That's down 2.3% from the 600,000 permits issued a year ago. Single family permits fell 3.4% to 421,000 from 436,000. Regionally, we saw a 32.3% monthly gain in the Northeast and a 9.7% rise in the West. But permit issuance fell 7.8% in the South and 10.8% in the Midwest.

The housing industry remains stuck in a rut, with both sales and construction activity moribund. Single family permits and starts slumped in June, and relatively broad-based regional weakness was evident up in the overall figures. Builders simply lack the confidence -- or in some cases, the financing -- to ramp up construction, especially in the wake of the home buyer tax credit's expiration.

What about the longer term outlook? Well, cheap mortgage rates and cheap homes should help ease the housing market's pain. But until we see signs of life in the labor market, we're just not going to see a robust recovery -- only more malaise.

Monday, July 19, 2010

NAHB index slumps again in July, hits 15-month low

The National Association of Home Builders just released its latest read on the housing market. The group's housing market index slumped to 14 in July from 16 in June. That's the lowest reading since April 2009 and worse than the average economist forecast of 16.

The subindex measuring present sales dropped to 15 from 17, while the subindex tracking expectations about future sales dipped to 21 from 22. The subindex measuring prospective buyer traffic fell to 10 from 13.

Regionally, it was a mixed bag. The Northeast index jumped to 23 from 16 and the Midwest index ticked up to 15 from 14. But the South index slumped to 14 from 19 while the West index collapsed to 9 from 14.

Houses are cheap. Mortgage rates are extremely low. Yet home shoppers are MIA. That's what the latest NAHB figures are telling us. Builders surveyed by the trade group were generally gloomy about current and future sales, and they aren't seeing much traffic through their developments.

My take? The expiration of the tax credit is clearly hurting the industry. But the deterioration in the broader economy and the dismal labor market are much more powerful -- and negative -- forces. With growth slumping again, and unemployment hovering near the double digits, we simply don't have the necessary ingredients for a sustainable recovery in housing. So we're not getting one.

Friday, July 02, 2010

June employment report weak

We just got the latest payroll figures for June. They look weak, though not ridiculously so. Some of the details? Employment dropped 125,000 overall, roughly in line with the forecast of -130,000. That includes a huge drop in temporary Census workers. If you strip that out, you get an 83,000 increase in private sector jobs, somewhat below the 110,000 that economists were looking for. A separate household survey showed a loss of 350,000 jobs.

Meanwhile, the unemployment rate actually fell to 9.5% from 9.7%. But that's because the labor market overall shrank by 652,000 workers, meaning the decline in unemployment isn't really "good" news. Average hourly earnings dropped 0.1% compared with a 0.2% gain a month earlier and the +0.1% forecast. That's the worst performance I can see, but my data only goes back to 2006. The diffusion index, which tracks how many industries are adding workers vs. how many are cutting, weakened to 52.2 from 54.8 in the private sector. That's another disappointment.

Thursday, July 01, 2010

May pending home sales plunge to record low.

May pending home sales were a disaster. Pending sales of used homes plunged 30% from April, compared with the 14.2% decline economists were expecting. Sales tanked across the board, with a 20.9% decline in the West, a 31.6% drop in the Northeast, a 32.1% decline in the Midwest, and a 33.3% fall in the South. The pending sales index has now fallen to 77.6, the lowest level since the National Association of Realtors began tracking the data in 2001.

If you're looking for a silver lining in housing, you aren't going to find it here. Demand has fallen off a cliff in the wake of the tax credit expiration, with pending sales falling by the biggest margin ever to the lowest level ever. The latest report comes in the wake of data showing large declines in new home sales and builder confidence.

What's the problem? Aren't homes cheap? Aren't mortgage rates at record lows? The answers are "yes" and "yes." But the overall economy is rolling over, consumer confidence is slumping and, most importantly, we just aren't creating jobs. It sounds simplistic, but it bears repeating: "No job = No house." And with so many Americans unemployed or underemployed, the housing market is going to keep hurting.

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