Digesting This Week’s Housing Data

Written by: David Lereah   Thu, June 4, 2009 Commentary, Market Activity

There has been a great deal of housing data released this past week to digest; some good news and some bad news. Since many believe that the housing sector may have already bottomed out, we are particularly focused on any new information that can either confirm or deny this claim.

The good news is that pending home sales and purchase mortgage applications were both up in their latest releases. The National Association of Realtor’s pending home sales index rose 6.7 percent in April to 90.3 compared to 84.6 in March. The April index was also 3.2 percent above the April index of 2008. The rise in April’s pending home sales further strengthens the notion that the January’s 80.4 index may be the cyclical low for this release. Pending home sales measures contracts on existing homes rather than closings so the improvement in the index portends favorably for May/June existing home sales reports. However, it is likely that a meaningful number of these pending contracts may fallout before reaching closing due to tight lender credit requirements. So we cannot get overly enthusiastic about the report.

The Mortgage Bankers Association’s purchase (mortgage) application index rose 4.3 percent to 267.7 in the week ending May 29 from a week earlier. This gain was particularly encouraging given that 30-year mortgage rates climbed 44 basis points to 5.25 percent from a week earlier. A rise in purchase applications usually translates into a rise in existing home sales. However, similar to pending home sales, a number of these applications could fall out before reaching closing due to tight credit requirements. Nevertheless, it welcomed news to observe applications to purchase homes increase in a rising mortgage rate environment.

The bad news is that reports on refinancing applications, mortgage delinquencies, foreclosures, and home values revealed disappointing developments for the housing sector. Because of rising mortgage rates, refinancing applications plummeted 24.1 percent in the latest week of the MBA’s application survey. Refinancing applications have now plunged 38.4 percent over the past two weeks, limiting needed mortgage business for lenders. It may not be overstatement to say that the 2009 refi boom is over.

According to the Mortgage Bankers Association’s mortgage delinquency report, delinquency rates and foreclosure filings continue to mount. Mortgage delinquency rates surged 124 basis points to a record high 9.12 percent of total mortgage loans in the first quarter compared to the fourth quarter of last year. Similarly, mortgages that entered foreclosure in the first quarter were up 29 basis points to 1.37 percent of total loans. And according to Realty Trac, foreclosure filings were reported on a record, 342,038 properties during April, an increase of 1 percent from the previous month and an increase of 32 percent from a year earlier. These reports were particularly disappointing and suggests that current government foreclosure mitigation programs, such as Making Home Affordable, are either slow to implement or not meaningfully effective.

Finally, the markets received a spate of disappointing home price reports, all signaling continued deterioration in home values. The Case-Shiller 20 city home price index fell 18.7 percent in March compared to a year earlier. Measured from its mid-2006 peak, the index has dropped 31 percent through March of this year. The Federal Housing Finance Administration’s, FHFA, purchase-only home price index declined 7.3 percent in March compared to a year earlier. And the median price of total existing homes sold in April declined 15.4 percent from a year earlier.

On balance, recent housing data suggests that the nation’s housing sector remains in a fragile and vulnerable state. Until home prices stabilize, it is difficult to imagine a housing sector in recovery.  However, there is evidence that the housing sector is scraping bottom which is a good thing. Looking forward, a severe recession, a deteriorating job situation and falling home values will likely keep the housing markets from experiencing any meaningful gains for the remainder of the year.


4 Comments For This Post

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  2. Alexis Bolin Says:

    The report comes as no surprise to me. If you just watch your own MLS sales numbers and absorption rate, you can see that even though we have sold a few more homes, prices are still declining while the inventory is rising. This tells me that we will have another year of declining prices until we get the majority of inventory sold.

    This report is a great tool to show sellers why today’s price is likely to be much better than the price they may receive 6-12 months from now.

    Alexis Bolin
    ERA Legacy Realty

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