Wednesday, December 26, 2012

The Great Reports Keep Coming In

Once again, we have a very up beat report on the Real Estate Market.  All factors are pointing up:  Builder Sentiment, Barclay's 8% improvement in Home Sales in 2013, Mortgage Rates staying low.

Without doubt, the noted pressure on interest rates could dampen 8% growth.  Yet, as noted, the "cheap" house is a thing in the past as values are increasing.

Keeping you updated on the market! For the week of
December 24, 2012

The numbers were a little sluggish, but the outlook continues to improve.
We're talking about the new-home market, where housing starts eased 3% to 861,000 units on an annualized basis in November compared to October. The good news is that permits rose 3.6% to 899,000 units. The up trend in permits bodes well for robust housing activity early in the new year.

Not surprisingly, home-builder sentiment has been rising with the new-home market. Home builders are reporting the best industry conditions since early 2007. Improving conditions, in turn, have lifted the NAHB/Wells Fargo Home Builders Sentiment Index to 47 for December – the eighth-consecutive monthly increase.
The sentiment index's breakeven point is 50, so once the index hits 51 more builders believe the outlook for the industry is positive instead of negative. The index hasn't been over 50 in nearly eight years, and it has been as low as eight as recently as early 2009.

The fact home-builder sentiment remains below 50 is a reminder of how deep and how penetrating the housing bust was, and how long the slog has been to climb our way back to normalcy.

The good news for both the housing industry and the overall economy is that there is plenty of upside left in the recovery. The average rate of starts over the past 45 years has been roughly 1.5 million units on an annualized basis. We still have a long way to go before we reach that average rate.

But could the mortgage market derail the recovery?

We ask because over the past two weeks concerns have risen over rising lending rates. The Mortgage Bankers Association reported purchase applications were down for the week of December 14. The MBA points to rising mortgage rates as the culprit.

To be sure, rates were up for most mortgage products. What's more, the yield on the 10-year Treasury note has continued to rise; this, despite the Federal Reserve expanding monetary efforts to lower rates.

We mentioned in last week's commentary that the Fed is a key player in maintaining low interest rates, but it's not an omniscient player. The Fed has intervened to an unprecedented extent in the mortgage market, but that doesn't mean market participants won't work to thwart the Fed's efforts. A growing number of participants are worried about price inflation.
Date and Time
Mortgage Applications
Wed., Dec. 26,
7:00 am, ET
Important. Purchase applications slowed on rising rates, but the long-term trend remains positive.
New Home Sales
Thurs., Dec. 27,
10:00 am, ET
384,000 (Annualized)
Important. Sales are expected to resume an upward trajectory after regressing in October.
Consumer Confidence Index
Thurs., Dec. 27,
10:00 am, ET
69 Index
Important. Confidence is steady and firm, with improving home-buying plans an important positive.
Pending Home Sales Index
Fri., Dec. 28,
10:00 am, ET
102 Index
Important. Recent index gains are raising expectations for positive economic contributions from the housing sector.
A Very Merry Outlook
A housing-analysis report issued by the financial services firm Barclays received considerable media attention this past week; principally because the report offered a very favorable outlook on housing.

Barclays sees home sales increasing 8% in 2013. It also sees housing starts for the first quarter of 2013 expanding to 944,000 units on an annualized basis before expanding to 973,000 units in the second quarter. Barclays also expects home prices to rise and mortgage rates to remain low through 2013.

We generally agree with Barclays' assessment (though mortgage rates holding today's levels is the weak link). We have a bullish outlook on housing for 2013, much like we had for 2012.

There is a downside to this bullish outlook, though. As prices rise and more distressed inventory is removed from the market, the home affordability index will fall. In fact, recent NAR data show the index is already moving lower, as the CNBC/NAR graph below reveals.

For the past six months, we've been warning that the most affordable, best-value deals are quickly evaporating. We see that trend continuing through 2013. What's more, we see the market tilting in favor of sellers. Therefore, we offer this caveat: for buyers who continue to wait, the cost of waiting will very likely rise.
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