The Market Gives Us More of What We Like
A week ago we wondered aloud if housing was set to lead the economy for the rest of 2015. Data this week suggest it's certainly moving in that direction.
After smoldering for far too long, existing home sales have taken fire. Sales were up a blistering 3.2% to 5.49-million units on an annualized rate in June. That's on top of May sales, which were revised up 4.5%. We haven't seen this monthly rate of sales since February 2007.
What's more, we haven't seen existing homes fetch what they are fetching in some time. The median price of an existing home surged 3.3% in June to hit $236,000, which surpasses the July 2006 peak.
This is really quite extraordinary, if not logic defying. When prices surge, demand usually abates (more so, though, with lesser consumer goods than with homes). That's hardly been the case. People obviously want a home, and they want it now. At the current sales pace, inventory has dropped to 5.0 months from 5.1 months. Supply isn't getting ahead of demand.
Veteran readers might remember that four years ago we were anticipating the turn of fortune that we are witnessing today. To be sure, we didn't expect the turn to be so sharp and so robust, but we did anticipate it. There was no shortage of exhortations on our part for people to seriously look at housing, and then get in. There were fewer takers than there are today, though prices in most markets were considerably cheaper.
To be sure, the world was different in 2011: Credit underwriting standards were tighter, the economy was less surefooted, household finances were shakier, and many potential buyers were fearful the nascent recovery would backslide. Today, economic conditions have improved all around, but of course, that's reflected in higher prices. The takeaway is that if you can afford (and stomach) being assertive when most are timid, it frequently pays off being assertive in the long run.
This isn't to say we don't like today's market; we do. Rising home sales is a sign of improved market liquidity. Lack of liquidity also kept many potential buyers on the sidelines a few years ago. When you buy a home today you are reasonably assured you can sell it within a reasonable time at a reasonable price. That's a huge plus.
Economic Calendar
Economic
Event
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Release
Date and Time
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Consensus
Estimate
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Analysis
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Mortgage Applications
|
Wed., July 29, 7:00 am, ET
|
None
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Important. Purchase activity is expected to remain on an upward trajectory through 2016.
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Pending Home Sales Index (June)
|
Wed., July 29, 10:00 am, ET
|
1.0% (Increase)
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Important. Recent sales trends point to strong monthly sales into fall.
|
Federal Reserve FOMC Meeting Announcement
|
Wed., July 29,
2:00 pm, ET
|
None
|
Important. Expect Fed officials to chat up the likelihood of a rate increase, but don't expect action.
|
Gross Domestic Product (2nd Quarter 2015)
|
Thurs., July 30, 8:30 am, ET
|
2.5% (Annualized Growth)
|
Important. Any deviation from the consensus will move interest rates.
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Don't Take the Dips for Granted
Mortgage rates have eased over the past couple of weeks. Greece bores more than it titillates, and China's economy is on firmer footing than it was a month ago. On our side of the world, fewer people seem willing to speculate on when the Federal Reserve will raise interest rates.
There's not a lot going on, and that's reflected in lending rates. Mortgage rates are down, though purchase mortgage activity continues to climb. Last week, the Mortgage Bankers Association's survey showed application activity was up 1%. This lifts the year-over-year increase to 18%.
The mortgage market is robust, and should become even more robust. The MBA now forecasts that purchase origination's will hit $801 billion this year and $885 billion in 2016. That's a $71 billion and $94 billion respective increase over the previous forecast.
Now is the time to act. Mortgage rates are lower, but the impetus is for them to rise longer term. Keep in mind, the impetus is there whether the Fed acts or not. Market participants are pushing for higher lending rates.
Also keep in mind that demand influences lending costs. If the MBA's forecast on mortgage activity materializes, there is less incentive on the suppliers' side to discount fees or offer other accommodations. The bottom line is that today's prices in both financing and real estate are very likely better than tomorrow's prices.
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