June 2011 Market Update

The Pending Home Sales Index, which is a measure for the number of homes going under contract showed a drop in April from March as well as April of last year (see March 2011 Market Update for more on the PHSI). The PHSI dropped 11.6 percent from March and 26.5 percent from April 2010. In the South, the PHSI dropped 17.2 percent from March and 27.0 percent from this time last year. Although this is considered to be a soft number for the housing market, the numbers need to be analyzed a little more to understand the meaning behind what took place. April of last year was the deadline for those homebuyers that were looking to get the Homebuyer Tax Credit to get their offers under contract. Naturally, this inflated the amount of homes going under contract this time last year.

One factor that may have played a large role in buyer behavior in April is the amount of precipitation experienced across the country. April saw the most precipitation the nation has seen in 20 years. What does that have to do with anything? Well, who likes to go take a look at a home in the rain? Most of the time, rain will stop a potential homebuyer from wanting to look at homes on any given day. If buyers are not looking at homes, they sure aren’t going to submit an offer for one. A second factor that consumers experienced as a whole was a spike in oil prices. Fuel prices shot up to over $5 per gallon in some parts of the country and that, more than likely, weighed on the minds of consumers who were considering getting into the market for a home.

On the bright side, rents are rising. Some would say this is not a good thing; however it is for the housing market. With interest rates continuing to hover at historic lows and the cost to rent beginning to exceed the cost to own, more will opt for home ownership. Additionally, another positive number for April was the number of mortgage applications initiated. Mortgage applications have been rising since the beginning of this year with April showing the highest level of applications thus far. Mortgage applications tell us what demand is like on the front end of the home buying process.

Although mortgage applications are rising, some of these would-be-borrowers are having a tough time getting approved due to the stricter lending standards imposed by banks. Bank deposits have risen by $500 Billion over the past year, but banks have actually tightened the amount of home lending they are doing. This is probably due to the amount of regulation banks have seen imposed on them lately by government. With rents rising, interest rates remaining low, positive job numbers, and fuel prices moderating, the outlook for the housing market in the long term and later this year should remain on the up.

May 2011 Update

Is the housing market really starting to recover? Some say it is and some say to watch out. The facts are that Pending and Existing Home Sales are in an uptrend month-over-month for the past three months. Jobs are continuing to improve which is usually a good sign for the market, and interest rates look like they might start to hike. With these things in mind, how will they separately affect the housing market?

Well....let's first look at Pending Home Sales. The Pending Home Sales Index(which measures homes under contract, not closed transactions) has seen an increase month-over-month since January of this year, and an overall month-over-month increase for 9 of the past 12 months. In March, the PHSI saw an increase of 5.1% from February. The South saw an increase of 10.3% from February. Although we are experiencing an increase month-over-month in the index, the index is down year-over-year from March of 2010. The reason for this is because of the inflated demand of consumers rushing in to qualify for the Homebuyer Tax Credit last year. The index is down 11.4% from March 2010 nationally, and was down 10.5% for the South. Now that the tax credit is no longer a factor, it is safe to say that the growth that we are seeing in the index is natural and healthy.

Existing Homes Sales are also on the rise. Existing Homes Sales (which exclude newly constructed homes) have been in an uptrend since June of 2010 as well. March 2011 Existing Home Sales were up 3.7% from February 2011 nationally and up 8.2% in the South. From March of last year, Existing Homes Sales were down 6.3% nationally, but only down 1% in the South (once again due to the inflated Homebuyer Tax Credit demand).

Two other factors that will have a significant effect on how the housing market will play out this summer are employment growth and interest rates. Employment growth has picked up recently and if it continues, will help to lift the housing market. Which leads to the next factor being interest rates. As the Federal Reserve has pumped money into the economy, we have started to see the effects of inflation creeping into the economy. With the Fed backing off of its monetary efforts, employment continuing to grow, and inflation rising, the Federal Reserve will have to raise interest rates to keep inflation from getting out of control. As interest rates rise, mortgage rates will rise and you will see more buyer's come off the fence and jump into the housing market in fear off not getting a lower rate.

Taking all things into consideration, job growth will continue to be the most important factor to watch. If people do not have a job, they do not have money to buy a house.