“New home sales, which surged in May, look to continue to rise based on the housing market index which, rising 4 points to 53 in July, is at its best level since January. Components show special strength for sales expectations, at 64 for a 6 point gain and, importantly, a 4-point gain to 57 for current sales.” [Bloomberg].
We will get the latest figure for New Home Sales on Thursday (7/24). This may be an important piece of data. Expectations have grown that New Home Sales might truly break out of their long slumber. Most recently, the NAHB Housing Market Index, based on a monthly survey of builders, has shown growing confidence in New Home market improvements.
But something odd remains. In last week’s report, we saw the overall housing market index rise a strong 4 points. A reading of 50 or above (it was 53) suggests the market is expand-ing…no longer contracting. At the same time, we saw a 6-point gain for sales expectations (belief that sales would improve further in the future) where the index reached 64, and a 4-point gain for current (near-term) sales, at 57.
All of this has spread a strong optimism over the New Homes market. But–the survey measures the strength of potential buyer traffic as 39. Far below 50, and below what one might expect from an improving market.
Why hasn’t the buyer traffic component risen along with sales expectations? It’s a curious moment for New Home Sales. As is often the case these days, many analysts blame the lack of Entry-Level Buyers, especially Millenials (ages 18-34). We may tire of blaming the difficult twists and turns of this recov-ery on them. Meantime, let’s assume we have something here that we can’t yet understand.
Also difficult to understand is the weak growth of mortgage applications-particularly purchase money loans. If sales of homes are growing, and more lender-financed transactions are being written, we would expect more applications to be reported in this index. It seems to be another case of the left hand not quite knowing what the right is doing, and it may eventuate in a spike in mortgage applications within the next few months. But there may also be something a little more worrisome holding back the mortgage applications–like bureaucratic delays perhaps–as paperwork is processed slowly.
All told, nonetheless, there is much reason to look at the indicators that will be published this week and next with great interest. New Homes Sales could continue to rise significantly, and Existing Homes Sales could affirm the upward movement.
Meantime, Chairwoman Yellen and most of the Fed’s Board of Governors are quietly hinting that we may see rising short-term rates a bit sooner than expected–in the second half of 2015. This should remind us that, if we want the benefit of these historically low rates for years to come, we should perhaps secure our longer-term financing NOW.