The lull at the start of 2014 for the housing market that was blamed on unseasonably cold and icy weather has not bounced back the way many analysts expected, lending to a mixed bag of housing market data. While there have been moments of sunshine, the housing recovery is still looking a bit more sluggish than before as gauged by the latest reports hitting the wires on Monday and Tuesday.
The National Association of Realtors said on Monday that fewer Americans inked contracts to buy pre-owned homes in June than in May. NAR’s seasonally adjusted pending home sales index dipped to 102.7 in June, a drop of 1.1 percent from May, putting the index 7.3 percent lower than June 2013. The index is correlated to average contract activity in 2001, a period of healthy home sales by NAR standards. Readings of 100 are equal to average activity in that year. In June, pending sales were lower in all four regions of the country.
Last week, the National Association of Realtors said that existing home sales rose from May to June by 2.6 percent to a seasonally adjusted annualized rate of 5.04 million, marking the first time since October 2013 that the 5-million mark was broken. The bad thing: economists consider a 5.5-million annual rate as indicative of a healthy market, so better is still not good.
Existing home sales are the closing of a sale of a pre-owned home. Pending home sales are contracts signed with intentions to buy a pre-owned home, which usually takes between one to two months for closing of the sale.
In the week prior, the Commerce Department reported that sales of new homes sunk 8.1 percent in June to a seasonally adjusted annual rate of 406,000. Worse yet, May was revised sharply downward from a 504,000 annual pace to 442,000. March and April figures were also slashed, including April’s previously reported 19-percent gain being shaved all the way down to only 8 percent, marking the biggest revision for a month since records have been kept on revisions (1996).
In addition to limited availability of credit, another one of the problems is that wage increases have remained low, barely keeping pace with the inflation rate as prices of homes have been climbing. Rising prices finally took a breather in May, though, according to the S&P/Case Shiller on Tuesday. The composite index of 20 metropolitan areas edged down by 0.3 percent month-over-month, against economist predictions for a 0.2 percent increase. Compared to last May, the 20-city index was up by 9.3 percent, breaking a streak of 14 straight months of double-digit, year-over-year hikes. Make no bones about it, prices are still on the rise in the grand scheme of things, but just didn’t rise as fast in May.
Taking an overarching view of tight lending, low inventory (although getting bigger), slow salary increases and rising home prices seems to be equating to a larger renter’s market. The Commerce Department said on Tuesday that the home ownership rate slipped by 0.1 percent in the second quarter from the first quarter to a seasonally adjusted 64.7 percent. That’s the lowest level since the third quarter of 1995. Compared to the second quarter of 2013, the homeownership rate was down 0.3 percent.
The good thing is that for home shoppers with the cash for a down payment and credit rating to qualify for a mortgage is that interest rates have come back down some. According to Freddie Mac, the average rate for a 30-year note was 4.13 percent last week, as compared to 4.37 percent a year earlier.
The lack of real progress in the housing market is weighing on builders recently, which may be setting companies up for at least a bounce in the near term. In July, shares of Toll Brothers (TOL) are off by 10.3%, shares of Pulte ($PHM) are lower by 18.3% and Hovnanian (HOV) shares has been demolished by 22.2%.