Shadow Supply Leaps, Rates Hold, Purchase Activity Highest Since May


This week’s housing recap includes supply numbers on both the existing inventory from NAR and the shadow inventory from CoreLogic. Plus we’ll look at the Census Bureau’s  update on new, single-family home sales. Lastly, we’ll get an update on interest rates, and discuss a big spike in mortgage purchase applications.

Shadow Supply Leaps, While Actual Supply Drops

The National Association of Realtors reported a small decline in existing home sales of 2.2% in October over September’s data. The seasonally-adjusted annual rate was 4.43 million units, which was down nearly 26% from October 2009. Supply dipped to 10.5 months from 10.6 months in September. Running parallel to this report was CoreLogic’s report on the shadow inventory. CoreLogic reported that the shadow inventory (homes in REO not on the market, homes 90-days past due, and unprocessed foreclosures) has risen to 2.1 million as of August, up a full 10% over August, 2009.

Visible vs. Pending Inventory Chart (Source; CoreLogic)

Shadow inventory vs. pending inventory chart

While the shadow inventory is of serious concern, the legislative trend is still is focused on modifying loans and preventing foreclosure. The actual supply of homes is what affects price though the shadow inventory can stagnate it. The supply trends are likely to remain fairly constant over the next 6 months, but there is an outside chance that some of the recent increases in mortgage applications will help in reducing supplies near term.

Rates Steady

This week Freddie Mac reported that interest rates held steady with the 30-year fixed being up .01% to 4.40% from 4.39%. The 15-year fixed was also up .01% to 3.77%. The 30-year remains well below its 4.78% that it averaged a year ago. The 15-year fixed is a full ½ point lower down from 4.29% a year ago.

Rates were largely unchanged due to a shorter week with the Thanksgiving holiday and little news to cause volatility. The reaction to QE2 is fading way, GDP growth has been revised up slightly to 2.5%, and mortgage delinquency rates are slowly falling.

Mortgage Purchase Activity Highest Since May

The Mortgage Bankers Association’s weekly Purchase Index climbed 14.4% from a week earlier causing the weekly Market Composite index to rise 2.1%. The Refinance Index decreased 1%. Refinances still make up nearly 79% of all mortgage activity though that number is trending down due to rising interest rates. The 4-week moving average for purchases is now up 4%, yet the overall Market Index is down 3.2% as the refinance boom tapers off.

Purchasers are cautiously returning to the market as better economic data drives confidence in the housing market. Still, a recent survey by Fannie Mae shows that 29%of Americans still think it’s a bad time to buy a home. People will be looking closely at this week’s November employment report for signs of continued job growth.

New Home Sales Drop

The Census Bureau reported that sales of new, single-family homes dropped 8.1% in October from September of this year. The seasonally-adjusted annual rate was 283,000, below September’s 308,000 and 12.6% below October 2009’s 396,000. October of 2009 had some of the first tax credit sales. The variance is 16% +/- with a 90% confidence level. The data is extracted from surveys.

The important note with this number is the trend. The Census Bureau acknowledges the variance is high but overall new home sales are trending down. This is part due to low inventories of new homes, difficult to obtain financing, and low confidence. But all of those are improving so I believe we’ll see a reversal in this trend.

Final Thoughts and Look Ahead

This week’s highlight I felt was the increase in mortgage purchase applications. A rise in applications not seen since May of this year is big news. Consumers are starting to feel better about the economy due to stronger data. November’s employment report being released this week will have a big impact on how people are spending money for the holidays and ultimately housing. Black Friday spending was up just 0.3% over last year but many consumers are shifting their focus online (PayPal reported a 27% increase in spending over 2009 on Black Friday). This week we’ll also see the most recent Case-Shiller report (consensus is for another decline), and pending home sales from the Realtors (consensus is for slight decline).

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.


  1. Pingback: Have foreclosures peaked? Don’t bet on it. | Real Estate Realities With "The Rebel Broker"

  2. agreed. “shadow” inventory is more than just a name – knowing that there’s a huge cloud of homes owned by banks – in other words, homeowners who didn’t make it – is a very real source of intimidation for prospective buyers.

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