Mortgage News Daily

New and Existing Home Sales Point To Contradictory Conclusions T'was the best of times, t'was the worst of times.
It all depends on who you ask and when you ask them.

Two more housing surveys were released this week with very contrary results and it seems ever more clear that the housing market is either going to take a long while to sort itself out and decide which way to head or it may just see-saw or drift without ever resolving the question of the housing bubble.

The National Association of Realtors issued their report on the sales of existing homes for the month of April (the figures we reported last week were for the first quarter of 2006) and they showed that sales were easing off after two months of increases. But, a day earlier the Census Bureau in a joint release with the Department of Housing and Urban Development, announced that, to the surprise of almost everyone, new home sales had jumped nearly 5 percent above the March rate for total estimated annual sales of 1,198,000 units.

The NAR numbers which include sales of previously owned single family houses, condos, townhouses, and co-ops slipped 2 percent from downwardly revised March figures of 6.90 million to a seasonally adjusted annual level of 6.76 million units. This was 5.7 percent below the pace of existing house sales in April of 2005 on a seasonally adjusted basis and -10.1 percent unadjusted.

At present there is a six month inventory of houses available for sale at the present consumption rate compared with 5.6 months of inventory indicated by revised March figures. One year ago there was a 4.3 month backlog of houses for sale.

In spite of slowing sales, median and average sales prices were both up over March figures and year-over-year. The median price nationally was $223,000 in April compared to 218,000 in March. This April figure was 4.2 percent higher than the median of $214,000 one year ago. The Northeast showed the greatest increase in the median price since last year, 5.6 percent.
The average price nationally was $269,000, $4,000 higher than in March and 3.1 percent higher than last year. Average prices increased the most in the West where prices were up 3.9 percent year over year.

Census Bureau/HUD information on new house sales painted a brighter picture. Estimated new home sales for April totaled 1,198,000 (annualized) compared to the 1,142,000 projected in March, an increase of 4.9 percent. In spite of this good news, April 2006 sales are expected to be 5.7 percent lower than in April of 2005.

At present there is an inventory of new homes which is expected to take 5.2 months to sell at the current rate compared to a five month supply in March and a six month inventory in February. One year ago there was a 3.8 month supply of new homes on the market. Houses that sold this April had been on the market for a median period of 4.0 months compared to 3.9 months in March and 4.4 months one year ago.

The median price of a new home in April was $238,500, an increase of $6,500 since last month and the average price was $298,300, up from $291,200. Both median and averages prices fell significantly from February to March so it is hard to draw any conclusions about trends from the current figures.

Mortgage Rates Drift Higher While Applications Down

Mortgage rates edged up a bit during the week ended May 18 according to the Weekly Primary Mortgage Survey conducted by Freddie Mac.

The 30-year fixed rate mortgage averaged 6.60 percent, two basis points higher than the previous week. Fees and points were unchanged at 0.5.

The 15-year fixed rate increased three basis points to 6.20 percent with fees and points constant at 0.5. The 5/1 year adjustable rate mortgage averaged 6.23 compared to 6.22 the previous week. Fees and points were again unchanged at 0.5. The 1-year ARM was unchanged at 5.62 percent with a 0.7 average for fees and points.

The North Central region of the U.S. deviated substantially from the rest of the country in the fixed rate category. The 30 year rate was 6.73 in that region while the average in the other four areas varied in a narrow range of 6.57 to 6.58 percent. The 15-year rate in the North Central region averaged 6.27 compared to a range of 6.18 to 6.21 in the rest of the country. The higher rates in the North Central region, however, were compensated for by extremely low fees and points - 0.3 for both loan products compared to 0.5 or 0.6 in the rest of the country.

There was also substantial variation for the 5/1 hybrid ARM. Rates ranged from 6.10 percent in the Northeast to 6.38 in the North Central region with the other regions scattered evenly along that axis. There was a narrower range for the traditional one-year ARM; highest in the West at 5.66 and lowest in the Northeast at 5.58 percent.

Frank Nothaft, Freddie Mac's vice president and chief economist commented that "while financial markets try to decipher the spate of recently released economic reports, mortgage rates drifted slightly higher. The current debate is between rising inflation and slower consumer spending. Until the market finds out which influence will be the strongest (sic), mortgage rates should continue to fluctuate as they have the last couple of weeks."

Rates were reported moving in the opposite direction according to the Weekly Mortgage Applications Survey for the week ended May 19 as published by the Mortgage Bankers Association. Its report which includes responses from approximately half of the nation's lenders, indicated the average contract interest rate for 30-year fixed rate mortgages was 6.61 percent, down from 6.66 percent with points, including the origination fee, unchanged at 1.17. The 15-year fixed-rate mortgage also declined from 6.26 percent the previous week to 6.23 percent with points down slightly to 1.16 from 1.17. The one-year ARM dropped five basis points to 6.07 with fees down from 0.89 to 0.87. All MBA figures are for 80 percent loan to value products.
It is interesting to note that, in spite of heading in different directions, fixed rate loans were reported at very close to the same level in both surveys while better than one-half point separated the averages for the one-year ARM.

Application volume was down 6 percent on a seasonally adjusted basis from the previous week and 6.2 percent on an unadjusted basis. Activity was reported to be down 23 percent from the same week in 2005.

Refinancing applications increased from a 35 share to 35.7 percent of all mortgage applications and the volume of adjustable rate mortgages was once again over 30 percent (30.5) compared to 19.9 percent the previous week. This was the highest share of loan volume enjoyed by the ARM sector since January 27.

Housing Bubble: Fed Chairs Speak As One But Best Sellers Plug a Different View
The Federal Reserve in the persons of both its recently retired long-time chairman Alan Greenspan and his newly minted replacement Ben Bernanke have assured America that the housing bubble would not burst "on a national basis." The two, in fact, spoke as one last week on the subject as part of a concentrated effort on the part of the Fed to assuage inflation fears as the stock market took a major tumble.

But their upbeat assessments are in sharp contrast to several books, some of which are starring on best seller lists, warning of a coming cataclysm in the housing industry.

Amazon.com is currently featuring 16 titles dealing with the "bubble," most predicting a more-or-less devastating end to the exponential increase in home prices over the last few years. Chief among the doomsayers is John R. Talbott, a former investment banker with Goldman Sachs and a visiting scholar at the highly respected UCLA Anderson School of Management. His recent book Sell Now! The End of the Housing Bubble is an update of his 2003 best seller The Coming Crash in the Housing Market. Talbot obviously has been predicting Armageddon in the housing sector for several years. That he has not been right yet does not preclude that he will be.

Among the other authors and their books which warn of problems are:
House Poor: Pumped Up Prices, Rising Rates, and Mortgages on Steroids: How to Survive the Coming Housing Crisis; June Fletcher.
Cash in on the Coming Real Estate Crash: How to Protect Yourself From Losses Now, and Turn a Profit After the Bubble Bursts; David Decker.
Irrational Exuberance: Second Edition; Robert J. Shiller (perhaps the dean of housing research.).

Empire of Debt: The Rise of an Epic Financial Crisis; William Bonner;
and from the odd contrarian: Why the Real Estate Boom Will Not Bust - And How You Can Profit From it: How to Buy Wealth in Today's Expanding Real Estate Market; David Lereah. (Mr. Lereah, incidentally or maybe not so, is chief economist for the National Association of Realtors.)
We have not read all of these books but several have received very disparaging reviews from critics and readers alike about shoddy or cut and paste research or a lack of meaningful analysis. Talbot, however, has done some excellent research (building to an extent from data compiled by Shiller) and offers some interesting theories about the reasons for the bubble in the first place and why we should expect a total price collapse.
But, first, the views of the chairpersons.

Greenspan made his comments on May 18 as part of his first public speech in the U.S. since he retired after nearly two decades as Chairman of the Federal Reserve. Speaking before the Bond Market Association in New York he said "Home sales are off, applications are off, everything is going in the same direction. The boom is over, and you can say that with a fairly strong degree of confidence."

But, Greenspan said, there is no danger of a total collapse of the housing market and that prices would not fall nationally. Instead, he said that stable prices would replace the boom. As evidence, Greenspan cited earlier experiences in Australia and the United Kingdom. "Prices just flattened," Greenspan said, "and they had bigger booms than the U.S."

His successor, Ben Bernanke spoke earlier in that same day at a Chicago Federal Reserve conference on banking regulations and, in a question and answer session after the speech, made comments similar to Greenspan's. He referenced the increasing lack of affordability of housing due to both rising prices and increasing interest rates and said that one would expect to see cooling in the markets. Sales are slowing, he said, as are housing starts and there are signs that prices are not rising as quickly as they have been for the past few years. However, "it looks to be a very orderly and moderate kind of cooling at this point." Basically, the Chairman said, the market looks poised for a soft landing."

And Talbott?
Soft landing is not in his vocabulary. He is predicting a nose dive from current sales and price levels, sometimes naming cities and the level of danger. But then he does not believe that this current boom has been long-lived but rather a recent aberration. Among the many theories set forth in his book is that the housing bubble has only been around since about 1997 and that real estate has, for a hundred years of its previous history, been flat rather than a place to make a fast buck.

And the cause of this nine-year price spike? Mr. Talbot is not shy and the word "conspiracy" even makes it into a chapter heading.

He may be dead right or he may be manipulating statistics to prove many points, but his book is a fascinating and disquieting read. We will look at his many thoughts and predictions in a subsequent article. Share your thoughts about the Housing Bubble with us at Bubble Talk

Two New Reports Show Housing Exuberance Is Waning
Further evidence that the real estate boom is moderating came from the National Association of Realtors last week.

Quarterly figures on existing home sales which include single family houses and condominium units trended downward for the second straight quarter during the first three months of 2006.
The sale of existing houses established an all-time record in the third quarter of 2005 when a seasonally adjusted annual total of 7,180,000 homes changed hands. That dropped to 6,943,000 during the fourth quarter and has now retreated to 6,797,000 during the first quarter of 2006, a decrease of 2.1 percent both from the previous quarter and from the first quarter one year ago.

David Lereah, the chief economist for NAR said that "a steady rise in mortgage interest rates has slowed home sales in higher cost areas, yet job growth in some moderately priced markets is boosting sales in other areas. The net effect is a modest decline in home sales for the nation as a whole, but sales remain historically strong and are providing a solid underlying base for the overall economy."

Half of the regions in the U.S. showed a decline, most strikingly the West where sales were down 12.4 percent since last quarter. Sales also declined, although not as dramatically, in the Northeast for a loss of 2.9 percent. Sales, however, increased in the Midwest (1.1 percent) and the South had the strongest performance with an increase of 2.3 percent on annualized sales of 2,707,000.

Some of the losses were dramatic, particularly in those states that had been the "high rollers" over the past several years. Arizona, for example, was off 22.2 percent from the sales level of a year earlier and California 19.2 percent. Nevada, Washington, D.C., Florida, Virginia, and Wyoming all had sales decreases of over 15 percent.

However, 26 states showed an increase of sales since the first quarter of 2005, most notably New Mexico where existing home sales rose 26.2 percent and Louisiana with an increase in sales of 22.9 percent. NAR did not opine as to whether any part of the Louisiana sales were due to the effect of Hurricane Katrina with its victims scrambling to find replacement housing.
Also coming on strong was another Katrina state, Mississippi which was up 17.3 percent year over year. North Carolina was up 17 percent and Arkansas and Tennessee increased 16.7 and 10.4 percent respectively.

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Housing Bubble No Longer Expanding

It does appear that the housing bubble is, if not bursting, at least no longer expanding. For the second month in a row data from the U.S. Census Bureau and the U.S. Department of Housing and Urban Development indicates that builders at least are pulling back from the enthusiastic pursuit of home building opportunities that had been their pattern for several years.

In figures released on May 16, the joint survey revealed that building permits in April fell 5.4 percent from the revised March rate of 2,097,000 to an estimated total of 1,984,000. This is an 8 percent drop from the April 2005 estimate of 2,156,000 and 10.8 percent lower than the recent high-water mark of 2,221,000 permits issued in September 2005. Preliminary March figures (which were subsequently upgraded slightly from 2,059,000 to 2,097,000) had initially been reported as running 5.5 percent below the revised figures for February.

Single family home applications make up the bulk of permits and these were issued at a rate of 1,502,000 in April, a drop of 4 percent since March and down from 1,654,000 permits (9 percent) issued one year earlier.

Actual housing starts in April were at a seasonally adjusted estimated rate of 1,849,000, a drop of 7.4 percent from the revised March estimate of 1,996,000. Preliminary March figures had surprised most experts by coming in 7.8 percent higher than the revised February figures and over 23 percent higher than the figures in March, 2005 so some decline in this figure was anticipated. Housing starts, it must be noted, reflect the implementation of plans made much earlier and may be an indication that builders, with subcontracts and funding in place, are now being propelled along a trajectory they are unable to moderate. There was only a very small decline of 0.5 percent from March to April in the number of homes permitted for which construction was not started.

Housing completions dropped from 2,223,000 in March to 2,077,000, a 6.6 percent decline. This is still 8 percent above the April 2005 completion rate of 1,923,000.
The number of housing units under construction in April, 1,388,000, was the lowest since September of last year and was down 1.6 percent from April of 2005
There were substantial regional variations in the numbers released. The drop in permits issued was highest in the Midwest at -12.9 percent although single family permits were only down 5.5 percent. The West had a tiny 0.4 percent decline in permits. The Midwest also had the largest decline in homes permitted but not started at 10.7 percent from March to April; the other three regions showed declines of less than 5 percent.