Housing Market Insight – July 5th Edition

In this article

The most recent week’s housing news offered critical data regarding Mortgage Purchase Applications, direction on mortgage rates, Pending Home Sales, and information you don’t want to miss about employment trends and  mortgage delinquencies.   Also the government approved the extension of the home-buyer tax credit closings.  Looking for direction in the housing market?  This crop of news paints the clearest picture yet on the next 90 days.

Let’s take a look;

Home-Buyer Credit Closing Date Extended

Congress approved an extension of the home-buyer credit final closing date from June 30^th to September 30^th helping an estimated 180,000 buyers.   Many of these individuals had purchased properties via short sale where the banks had yet to approve their purchase.   The home-buyer credit closing extension should prop declining home sale numbers up slightly in the meantime.

Outlook:  This will prop up existing home sales a bit more but unfortunately this train ride is just about over.  Extending the close date is putting off the inevitable, ugly existing home sale numbers.  I wonder how many of the 180,000 short sales will actually close.

Mortgage Rates Sink but Where are the Buyers?

Rates have hit a new all-time low (again) in the last week dropping to a mere 4.58%.  The problem is the people who need to refinance and put money into the economy are unable to refinance.  Mortgage lenders are reporting only a trickle of mortgage applications.  For people in position to buy, refinance, or invest, a rare interest rate window is open.  For now we can see demand is weak as the rates aren’t prompting people to purchase.

Outlook:   This latest interest rate dip is creating another buying opportunity within the larger downturn  This presents an enormous opportunity for investors looking to buy-and-hold.  Those that can, should.

Mortage Purchase Applications Fall (Again)

While this week refinance applications increased, mortgage purchase applications fell another 3.3% leaving the index 36% lower than it was a year ago.  This means mortgage applications are at a 13-year low.

Outlook:   Despite rates falling, no one is buying.  This is highly bearish.  Over the next few weeks if we see this trend continue, we could see housing prices drop more than previously discussed. Meanwhile the rest of the economy is showing signs of improvement.

May Pending Home Sales Collapse

Any new records being created right now aren’t much cause for celebration.  The new record plunge by the Pending Home Sales Index showed a 30% month-over-month (MOM) decline.  This drop was worse than economists predicted, leaving NAR Chief Economist Lawrence Yun saying, “Consumers are rational and they rushed to meet the tax credit eligibility deadline in April” (I guess economists aren’t rational as they missed this one).

Outlook:    This really wasn’t news.  Demand for housing was directly tied to the tax credit.  Until we see a significant, natural (non-government stimulated) improvement in this number, you can bet real estate won’t be entering a sustainable recovery.

The Bright Spots – Private Sector Payrolls and Fannie Mae Delinquencies

Private Sector Payrolls (non-governement/census) increased by 83,000, showing the private sector is starting to see a positive long-term outlook.   Another future indicator, Fannie-Mae Delinquencies, showed a slight decline as the index looks like it may have peaked in the last few months.

Outlook:    Finally we’re seeing a still fearful corporate America add jobs.  This is going to lead real estate by a long time, maybe even 2-3 years.  With jobs slowly comes improved confidence.  With confidence comes demand generation for real estate.

The next 3 months as an investor

Over the next 3 months, I urge caution on those whose strategy is primarily flipping properties.  The exception?  If you’re in a boomlet city or neighborhood within a city you can probably ignore this warning.  The data obviously shows there is little in the way of owner occupant buyers in the general market.   The trends are pointing to a slow and painful post-tax credit summer in the housing market.  In fact much of the coming data related to existing home sales is going to be predictably bad.  I’m focused now on the furthest leading indicators this week such as Private Sector Payroll increases and the decline in Fannie Mae Delinquencies.  These numbers are forecasting the signs of a more sustainable recovery.

Note By BiggerPockets: These are opinions written by the author and do not necessarily represent the opinions of BiggerPockets.