Pending Home Sales Index Falls Just Short Of 100

Home sales appear headed for a mid-summer breather. 

One month after posting a multi-year high, the Pending Home Sales Index retreated to 99.3 in June -- a strong reading in its own right.

A "pending home sale" is a home that is under contract to sell, but not yet sold. June's value of 99.3 marks the 14th consecutive month during which the index showed year-to-year gains.

Last year in June, the index read 90.7.

For home buyers in Plymouth and nationwide, the 14-month winning streak is one worth noting -- specifically because the Pending Home Sales Index is different from the other housing market data that tends to make headlines.

Unlike the FHFA's Home Price Index, for example; or the monthly New Home Sales data which both report on how housing performed in the past, the National Association of REALTORS®' Pending Home Sales Index looks at how housing will perform in the future.

With high correlation, the Pending Home Sales Index predicts how Existing Home Sales will perform two months hence. This is because 80% of homes under contract convert to "closed sales" within 60 days of going into contract, and many of the rest convert within Months 3 and 4.

In addition, June's near-100 reading is significant.

The Pending Home Sales Index is normalized to 100, a value which corresponds to the average home contract activity in 2001, the index’s first year of existence. 2001 was an historically-strong year for the housing market which means that June's market action was also strong.

For today's home buyers, the Pending Home Sales Index implies that the current market is somewhat "soft" as compared to May, a scenario which lends itself to buyer-friendly negotiations. Plus, with mortgage rates at all-time lows, home affordability has never been higher.

It's an opportune time to buy a home. By next month, the market may look different.

New Home Sales Slow After Fast Start To 2012

The number of newly-built homes sold slipped 8 percent in June from the month prior, says the U.S. Census Bureau in its latest New Home Sales report. The June data shows 350,000 homes sold nationwide on a seasonally-adjusted, annualized basis.

The home sale tally fell short of Wall Street expectations but the Census Bureau revised higher its previously-released results for March, April and May by a collective 33,000 units. This left the June New Home Sales report as the weakest of the last five months, yet still stronger than the 21 months preceding February.

In other words, despite retreating from May, the June New Home Sales data was still quite strong. As compared to June of last year, sales of newly-built homes are higher by 15% and the national inventory of new homes for sale is down to 144,000 units.

This marks a 13 percent inventory reduction in just twelve months.

At the current sales pace nationwide, the complete stock of new homes would "sell out" in 4.9 months, a noteworthy data point because analysts believe that a 6.0-month supply of homes marks a market in balance. Home supplies of below 6.0 months suggest a "seller's market" where sellers have pricing power and excess leverage in negotiations. 

Home supplies have been south of 6.0 months since October 2011. This is the same month that marked a shift with other housing data points, too, including Existing Home Sales and the Home Price Index.

Since October 2011, the average new home sale price is higher by 6% nationwide, a trend that should continue in Maple Grove through the end of 2012 and into 2013 -- especially with mortgage rates at new all-time lows and home affordability at all-time highs. As more buyers enter the market amid limited supply, prices are expected to rise.

If you're a home buyer in search of new construction, therefore, the best new home "deals" you may find may be the ones you find today.

Home Values Rise 0.8% In May 2012

The housing market's bottom is 9 months behind us. Home values continue to climb nationwide.

According to the Federal Home Finance Agency's Home Price Index, home values rose 0.8% in May on a monthly, seasonally-adjusted basis. May's reading marks the sixth time in seven months that home values rose.

Values are now higher by 4 percent since the market's October 2011 bottom.

As a Plymouth home buyer or seller, though, it's important to understand what the Home Price Index measures. Or, more specifically, what the Home Price Index doesn't measure.

Although widely-cited, the HPI remains widely-flawed, too. It should not be your sole source for real estate data.

As one example of how the Home Price Index is flawed, consider that the HPI only tracks the values of homes with an associated Fannie Mae- or Freddie Mac-backed mortgages. Homes with mortgages insured by the FHA are excluded, as are homes paid for with cash.

5 years ago, this wasn't a big deal; the FHA insured just 4 percent of the housing market and cash sales were relatively small. Today, though, the FHA is estimated to insure more than 30% of new purchases and cash sales topped 17 percent in May 2012.

That's a sizable subset of the U.S. housing market.

A second flaw in the Home Price Index is that it tracks home resales only and ignores new home sales. New home sales represent roughly 10% of the today's housing market, so that's a second sizable subset excluded from the HPI.

And, lastly, we can't forget that the Home Price Index is on a 60-day publishing delay.

It's nearly August, yet we're only now receiving home valuation data from May. A lot can change in the housing market in 60 days, and it often does. The HPI is not reporting on today's market conditions, in other words -- it's reporting on conditions as they existed two months ago. Information like that is of little use to today's buyers and sellers.

For local, up-to-the-minute housing market data, skip the national data. Talk with a local real estate agent instead.

Since peaking in April 2007, the FHFA's Home Price Index is off 16.0 percent.

Mortgage Rates Down 1 Percent In One Year

Another week, another new low for mortgage rates. 

According to Freddie Mac's weekly Primary Mortgage Market Survey, the 30-year fixed rate mortgage rate fell 3 basis points to 3.53% last week nationwide. The 3.53% mortgage rate is available to mortgage applicants who are willing to pay 0.7 discount points, on average, plus a full set of closing costs.

One year ago, the 30-year fixed rate mortgage rate was 4.52%. Today, it's nearly one percent lower. For every $100,000 borrowed at today's rates as compared to July 2011, a mortgage applicant will save $57 per $100,000 borrowed, or $684 per year.

Over 30 years of a loan, those savings add up.

30-year fixed rate mortgage rates have now dropped through 5 consecutive weeks, and in 11 of the last 12 weeks, a streak dating back to late-April. Depending where you live, however, you may not get access to 3.53% mortgage rates. As Freddie Mac's survey reveals, mortgage rates vary by region.

Last week, mortgage rates by region were listed as follows :

• Northeast Region : 3.56% with 0.7 discount points 
• West Region : 3.49% with 0.7 discount points
• Southeast Region : 3.58% with 0.7 discount points
• North Central Region : 3.52% with 0.7 discount points
• Southwest Region : 3.56% with 0.7 discount points

Homeowners and home buyers in California, Oregon and Washington, therefore, received the lowest rates in the country, on average. Owners and buyers in Florida and Georgia, by contrast, received the highest rates.

This week, though, mortgage rates are lower everywhere.

With Spain at risk for a sovereign default and China warning of slow growth, mortgage rates began the week by falling yet again. If you're eligible to refinance, therefore, the timing may be right to lock a mortgage rate. Similarly, if you're an active home buyer in Plymouth , today's low rates will bolster your maximum purchasing power.

Talk to your loan officer about capitalizing on the lowest rates of all-time. Rates throughout Minnesota may not rise beginning next week, but when they do rise, they'll likely rise quickly.

What's Ahead For Mortgage Rates This Week : July 23, 2012

Mortgage markets improved last week on expectations for new Federal Reserve stimulus, plus ongoing concerns about the European Union's future.

Mortgage-backed bonds climbed to new all-time highs, which helped conforming mortgage rates drop to new all-time lows.

The average 30-year fixed-rate mortgage rate is now 3.53% nationwide, according to government mortgage-backer Freddie Mac's weekly mortgage rate survey. The 3.53% rate is available to mortgage applicants willing to pay 0.7 discount points plus a full set of closing costs where 1 discount point is equal to 1 percent of your loan size.

The 15-year fixed-rate mortgage rate dropped last week, too, falling to 2.83% nationwide, on average.

Even as mortgage rates in Plymouth drop, however, rate shoppers should be wary of a potential rate reversal. This is because July's rapid drop in mortgage rates, mostly, has been fueled by market speculation.

First, with employment data lagging, inflation pressures low, and slower-than-expected economic growth, Wall Street now believes that the Federal Reserve will launch its third round of quantitative easing next week, a move that would likely include large-scale mortgage bond purchases.

New, Fed-led demand for mortgage bonds would lead mortgage rates lower for homeowners and rate shoppers throughout Minnesota.

And, second, investors are preparing for a potential sovereign debt default in Spain, the Eurozone's fourth largest economy. The Greek economy, by contrast, which faces similar struggles, is 5 times smaller than Spain's. A Spain default, too, would likely lead U.S. mortgage rates lower.

That said, if neither event comes to pass -- if the Fed passes no new stimulus and Spain receives an ample-sized bailout -- mortgage rates would be expected to rise as Wall Street re-adjusts its expectations for the future.

The change would happen quickly, too.

This week, markets will continue to take their cues from the Fed and the Eurozone, but with an eye toward U.S. housing data. The housing market is linked to economic growth so strong results may lead mortgage rates higher.

The June New Home Sales report is released Wednesday; the June Pending Home Sales Index is released Thursday.