There's A Very Good Reason Why The New Home Sales Data Plunged In November

One day after November's Existing Home Sales report blew away estimates, the Census Bureau's related New Homes Sales report failed to impress.

A "new home" is a home that is newly-constructed; not bought as a resale.

In a lackluster showing, New Home Sales dropped 11 percent in November, falling to the lowest levels since April. Furthermore, the all-important "months of supply" climbed by a half-month to 7.9.

The press pounced on the figures and if you only read the headlines, you'd think that housing had cratered.  Some of the angles were quite bold, even:

• Weak U.S. Home Sales Show Recovery's Shakiness (Reuters)
• New Home Sales Plunge In November (CNNMoney.com)
• Housing Forecast : Off Life Support, Still In Critical Care (CBS News)

These headlines, although technically accurate, only tell half the story, however. The other half relates to November 30's role as the original First-Time Home Buyer Tax Credit ending date.

See, different from home resales, when a contract is written on a newly-built home, the home is rarely finished.  This is the same in Minnesota as in any state.  According to the Census Bureau, just 1 in 4 new homes are sold "move-in ready".  The other 3 of 4 are in various stages of construction when a buyer signs on the dotted line.

Some have yet to break ground, even.

Regardless, it's at this date of signing that the Census Bureau counts the home as "sold" -- not at the actual closing.  This is the main driver of the November New Home Sales data dip.

First-time home buyers in Minneapolis would have risked up to $8,000 in federal tax credits if they bought a newly-built home and it wasn't ready for move-in by November 30, 2009.  And it wasn't until November 5 that the credit was officially extended.

Suddenly, first-timers representing more than half of last month's Existing Home Sales isn't so shocking. Buying new carried a lot risk.

There's always more to the story than the headline.  Sometimes, you have to dig deeper. Looking back over 10 months, the housing market is on a steady course of improvement. November's New Home Sales data -- although weak -- is not terrible.

Despite what the papers might say.

Home Inventories Plummet, Foreshadowing Higher Prices By Spring 2010

Home resales are soaring.

For the 4th consecutive month, the Existing Home Sales report revealed what today's buyers and sellers already know -- there's a lot of buyer activity in Minneapolis right now.

Existing Home Sales surged 7-plus percent in November, posting its largest number of recorded sales in 33 months.  Sales volume is up 44% higher versus last year.

It's another example of the housing market in recovery.

There were other interesting statistics buried in the November data, too.  According to the National Association of Realtors:

1. 51 percent of home buyers were first-timers
2. Distressed properties accounted for one-third of all sales
3. The median home sale price rose slightly

But of all the stats from the November Existing Home Sales report, perhaps the most important one is the one showing home supplies falling to 6.5 months. It's nearly half of the home supply available last November.

The rapid run-off of inventory throughout 2009 is more than a trend at this point and suggests higher home valuations in 2010. Especially because mortgage rates are low, tax credits are available, and the press is giving housing positive coverage.

You shouldn't feel rushed to buy, but you probably don't wait too long, either.  The best deals of 2010 may be gone before that Spring Buying Season even starts.

When It's A Holiday Week, Mortgage Rate Shoppers Should Be Extra Vigilant

Mortgage pricing worsened Monday, driving Wisconsin mortgage rates to their highest levels since October.

The day's action was drastic, too. 

Some banks issued as many as 3 rate sheets Monday -- each worse than the preceding and one reason why rates got so bad, so quickly, is because this week marks the beginning of mini-Vacation Season on Wall Street. 

Between now and January 4, 2010, be prepared for big swings in pricing from day-to-day.  Shopping for a mortgage could be a challenge.

The relationship between vacation days and mortgage rate volatility is rooted in how mortgage rates are "made".

1. Conforming mortgage rates are based on the price of mortgage-backed bonds, a security that is sold on Wall Street
2. Mortgage-backed bonds can't sell without a bond buyer and a bond seller agreeing to a specific sale price

So, during vacation week, when the total number of market participants are less, there are fewer opportunities for buyers and sellers to meet at a specific price.  As a result, bond prices rise and fall with a higher velocity than on a "normal" day.  Rallies and momentum plays are exaggerated, too.

Now, mortgage market action like this can work in your favor, or it could work out of your favor. Unfortunately, on Monday, rates for shoppers in Minneapolis moved out of favor.

This rest of this week is stacked with market-moving economic data. The data could be better-than-expected, or worse-than-expected.  Either way, markets will react a little more feverishly than normal.  Therefore, if you have a chance to lock a favorable rate, consider taking it.

Before long, the rate could be gone.