This week we cover the pending home sales release from the National Association of Realtors, new home sales, interest rates, and news on delinquency.
Pending Home Sales Hit Skids
The National Association of Realtors (NAR) reported pending home sales plunged 11.6% in April. Year-over-year pending home sales are down 25.6% when the second home buyer credit was at its peak.
Lawrence Yun, chief economist for the Realtors, said a combination of rising gas prices, severe weather, and a weaker economy contributed to the significant drop in contract signings. The moth-over-month drop in April is important because at this time of the year, contract signings should be in full swing. I believe the higher gas prices had the biggest impact on the consumer. Just as people are starting to feel better about the economy, incomes are being sapped by higher fuel costs. Higher fuel costs can make people rethink their housing situation and commute times.
Record Low: New Home Sales
The Census Bureau reported new home sales stood at a seasonally adjusted annual rate of 323,000. This is 23.1% below April of 2010, but 7.3% above March 2011. This represents a record low for the month of April.
Unfortunately the Census Bureau has a 16.6% margin of error. Despite the margin of error new home sales are still in the doldrums. Builders are having a difficult time obtaining financing several years into the crisis. Many areas still have busted subdivisions and frankly there isn’t enough supply or confidence in the market to spur significant activity in the new home market.
Housing Starts Stall
The Census Bureau reported housing starts fell to an estimated 10.6% in April over March 2011 to a seasonally adjusted annual rate of 523,000. Year-over-year housing starts are an estimated 24% below April 2010 forecasting the worst year yet for home builders. Single family starts were down 5.1% in April over March. Building permits were also down. Permits stood at a seasonally adjusted annual rate of 551,000, down 4.1% from March 2011 and 12.8% below April 2010’s estimate of 623,000.
With housing starts and building permits creating new cyclical lows every month, supplies of existing homes both for purchase and rental will become constrained. We’ll see this first in the rental market as people foreclosing or short-selling will be forced to become tenants. This plus the migration away from an ownership society will be a boon for investors. With little new product hitting the market, the investment side should continue to be profitable from the yield perspective.
Interest Rates Soften Further
Interest rates continued to drift down for the week ending May 26th, 2011. According to Freddie Mac, the 30-year fixed rate fell to 3.60% from 3.61% the prior week. The 15-year fixed rate dropped to 3.78% from 3.80%. A year ago rates were at 4.84% and 4.21% respectively.
The leading index of economic indicators declined 0.3% in April. Housing data was weaker in April as well. Because of this, rates have continued the short term downward trend. When economic indicators improve, we’ll see rates rise commensurately.
Levels of serious delinquency are dropping rapidly forecasting a light at the end of the tunnel for the housing crisis. Seriously delinquency dropped from 5.47% year-over-year to 4.27% for the month ending March. Month-over-month delinquency is down from 4.44% in February, 2011.