Housing Market Insight – Week of July 26th

by | BiggerPockets.com

As we near the end of July, much of the recent housing news has been focused on a double-dip.  While much data points to a decline in pricing, signs continue to point to a market which has largely bottomed out recovering.  This week’s housing coverage includes updates on builder confidence, an update on interest rates, a surprising turn in purchase applications, expected news with regards to existing home sales, and a shocker in the way of loan-modifications.

Builder Confidence Level Matches April 2009 Low…

The National Association of Home Builders reported that builder confidence dropped for the second consecutive month in its latest Housing Market Index. This matches a level not seen since April 2009. The Housing Market Index (HMI) dropped to 14.  A healthy market for builders is anything over a 50, a level not seen since 2006.

I doubt we’re going to see improvements in the index near term.  The National Association of Home Builders expects to see a 10% improvement in new home sales in 2010 over 2009.  Maybe when this prediction becomes an actual result, the builders will regain confidence.  Even then, confidence levels seen in 2006 aren’t likely for years when financing markets loosen up enough for builders to get favorable financing.

Interest Rates Hit Another Record Low…

Freddie Mac reported interest rates dipping further to 4.56% from 4.57% (30-year fixed) the prior week creating a new record low.  The 15-year dropped to 4.03% sparking a new record since tracking began in 1991.

The great news is growing old for many who don’t qualify for the record low interest rates.  I’m surprised that some experts are signaling this is good for refinancing but ultimately the people who need to refinance, can’t.  I believe letting the good payers who can’t qualify somehow reduce their interest rates would spur additional consumer spending.

Mortgage Purchase Applications (Finally) UP…

On Wednesday the Mortgage Bankers Association reported 7.6% increase in its weekly Mortgage Purchase Applications Survey.  Conventional purchase applications were essentially flat while government purchase applications rose 8%.  Looking year-over-year, the index was down 35%, indicating the recovery process is going to be long and slow.

While any increase at this point is good news, I question the reasoning for the increase.  Was it really due to interest rates being low?  This assumes that people using conventional financing weren’t conscious of the low rates?  I’m thinking that there is real pent-up demand in the market and we’ll start seeing the index increasing slightly with the larger trend still pointing down.  Any increases point to stabilization.

Existing Home Sales Slide (Less than Expected)

As expected the National Association of Realtors reported that existing home sales fell in June, although the drop wasn’t as big as many expected.  Existing home sales fell 5.1% to a seasonally adjusted annual rate (SAAR) of 5.37 million from 5.66 million in May.  However existing home sales were nearly 10% higher than last June.

As tax credit purchases finish closing out over the next few months, we’ll likely to see this number to continue to slide.  Even usually bullish Lawrence Yun, NAR’s chief economist is foreshadowing further declines saying, “Only when jobs are created at a sufficient pace will home sales return to sustainable healthy levels.”

HAMP Modifications Succeed…

Since April 2009 nearly 3 million borrowers have had their loans modified under the Housing Affordable Modification Act (HAMP).  Of the borrowers receiving relief in excess of 90 days, amazingly, only 2% re-defaulted.  Fewer than 3% of homeowners receiving permanent modifications have defaulted on their HAMP-modified loans.   On the opposite side is a 57% re-default rate on mortgages modified outside of the HAMP program by the nation’s largest 11 mortgage servicers.

While I’m sure some bears are disappointed that loan modifications are working, the HAMP program is still at an early stage.  I’d expect this performance to erode to some extent as the crisis is still fresh on people’s minds and the prospects of a double-dip in home prices negatively impact confidence.

Keep Calm and Carry On

I anticipate the housing market will see little change in finding a true direction anytime soon; however the conditions exist for a market recovery.  Personally I’m seeing a lot of cash real estate investors coming in to the market, leaving me thinking the smart money knows we’re riding along the bottom with prices and rents.  Any signals of health in the housing market are likely to spur further investment. In fact, we’re already seeing it with foreign investors doubling down in the US over the last 12-months.  With these factors in play it makes sense to focus on the micro-market picture of your city or geographic and avoid the macro-level negativity.

About Author

Ryan Hinricher is a Real Estate Entrepreneur, Blogger, Change Advocate and Founder of Investor Nation, a concierge realty and real estate investment company focused on the needs of the residential investment home community.


    • Edwin,

      Though I reside in New York these days, my firm, Investor Nation is based in Memphis. I’m still doing a lot of real estate trades there and have built a nice buy-and-hold portfolio. I’d certainly like to do a market review of Memphis but have refrained from doing so. I think great opportunities exist in the higher end range. I’m staying away from older inventory and ares with high crime.



  1. Wow. I hate to be a downer in the face of your optimism but how can you look at how disturbingly bad the macro economics of the real estate economy is looking and then turn to some anecdotal street level transactions and say anything is bottoming out?

    “signs continue to point to a market which has largely bottomed out recovering”

    Saying that signs continue to point to a market which has largely bottomed out recovering is like saying that when the titanic was halfway under water that signs were starting to show things were looking up.

    IMO we are in for a huge seismic shift from anything any of us has ever seen. To keep saying things are turning around I think misses the point. Things are not going to turn around. Things are just going to be different.

    As professionals, I think we should start looking at a market that different now and forever rather than trying to look back to something that’s not coming back and if it does come back won’t look anything like it did before.

    But that’s just my opinion.

    • Steven,

      Isn’t it hard to argue that the ship is sinking when there are signs of recovery in specific local markets, with the macro picture much healthier than it was 12 months ago? Haven’t we just been through a seismic shift? We’ve just lost 10 years of gains in home ownership rates. The economy goes through peaks and valleys and even if housing flat lines for the next half-decade, which it easily could, eventually prices will rise again over time.

      Comparing the housing market to the titanic isn’t an analogy with much merit. We have a booming population and long term demographic trends continue to support this. Foreclosure are set to peak and overall new delinquency is in decline. Lending standards are significantly tighter than they’ve been in 20 years. Housing will be in demand again. This time it may be in the form of rental. We currently are sitting on an oversupply of it and the prices were over inflated. Also despite the macro picture, real estate is localized. Impossible to argue this. My home state saw zero price decline in the biggest market, has low levels of unemployment and rising real estate prices. They’re saying, what crisis? Where I reside today already has rising rents with 1.6% vacancy rate and people fighting over rental properties.

      As professionals we do need to retool our thinking and realize the market will never be the same. To hope the market, “comes back” isn’t a strategy.

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