Financing Homes in Lake Tahoe and Truckee since 1992.

Incline Village Mortgage Rates and Incline Village Home Loans – The Quandary of New Home Sales

Incline Village Mortgage Loan Rates and Incline Village Home Loans – Commentary ~ August 30, 2013

 How can we possibly explain that the number of existing homes selling in July increased by a strong 6.5%, whereas the sales of newly-constructed homes fell from 455,000 to 394,000 when compared to June?

 “There was no advance indication for the degree of weakness in this report especially given accelerating recovery highs in the home builders’ housing market index,” note the editors at Bloomberg.com. The pundits suggested that rising mortgage rates may have slowed the sales of new homes, but this seems a dubious response since many of those same pundits had suggested the higher rates actually caused the spike in existing home sales, as buyers sought to grab relatively low rates before they rose higher.

 Pundits also suggested that new home sales were depressed a bit this last month by heavy rains, which cut into construction of homes and dampened new homebuyers’ enthusiasm for touring the new homes in their area.

 Few of the headline explanations, in any case, are particularly satisfying. Bloomberg.com noted the oddity that the NAHB Housing Market Index had just risen to 59, a 3-point leap to the strongest reading since 2005. How can we reconcile these apparently contradictory facts? It turns out that it’s not as hard as it seems at first.

 For one thing, the Federal Reserve’s announcement a couple of months back regarding the likelihood that it would start “tapering” its huge purchases of mortgage-backed bonds has created tremendous worry among investors as to whether interest rates will soon rise. When world investors fear that interest rates may rise, they nearly always rise…immediately. And that is what has happened. Thus, the claim that higher rates may have played a part in sales data most likely has truth to it.

 Further, the new home sales are computed—somewhat like the Pending Home Sales Index, which just fell, too—based on newly-signed contracts, not on completed sales. The new home data, therefore, often provides meaningful clues about what we’ll see in existing home data next month.

 There’s much more to consider, and we doubtless will in future weeks. But keep in mind, too, that new home data collection has generally proven to be a much more volatile process than have existing home sales computations. Further examination suggests that the data before us are not bad, should have been expected, and will smooth out a great deal in the future. That’s not guaranteed, but it’s better than what we saw at first glance. So we’ll keep looking.

Category: Interest Rate