Pending Home Sales Index Continues To Show Strength

Nationwide, homes continue to sell briskly.

According to the National Association of REALTORS®, the Pending Home Sales Index read 99.2 for August -- the fourth straight month in which the index hovered near its benchmark value of 100.

A "pending home" is a home that is under contract to sell, but has not yet closed. The index measures with fair accuracy the future strength of the U.S. housing market.

For today's Minneapolis home buyers, the August Pending Home Sales Index is relevant for several reasons.

First, the index remains near its highest point since April 2010, the last month of that year's federal home buyer tax credit. This implies that the current housing market is performing nearly as well as the "stimulated" market of two years ago -- except without the accompanying federal stimulus.

The housing market is standing on its own, in other words.

Second, the Pending Home Sales Index suggests that today's housing market is among the strongest of the last decade. We can make this inference because the Pending Home Sales Index is a relative index, benchmarked to the value of "100" which represents the housing market as it behaved in 2001.

2001 was strong year in housing. With today's Pending Home Sales Index remaining near 100, it tells us that 2012 is similarly strong.

And, third, the Pending Home Sales Index is relevant because it's a forward-looking housing metric -- one of the few that are regularly published. As compared to the Case-Shiller Index or Existing Home Sales report which both report on how housing fared in the past, the Pending Home Sales Index projects 30-60 days to the future.

Based on August data, therefore, we can expect for home sales volume to remain high as 2012 comes to a close.

If you're currently shopping for a home, you've likely noticed a change in the market. Multiple-offer situations are more common and sellers are regaining negotiation leverage. The longer you wait to buy, therefore, the more you may pay for a home.

Read the complete Pending Home Sales Report on the NAR website. 

New Home Supply Remains Firmly In "Seller's Market" Territory

The market for new construction homes remains strong nationwide.

According to the U.S. Census Bureau, the number of new homes sold slipped 0.3 percent in August 2012 to a seasonally-adjusted, annualized 373,000 units sold — just 1,000 units less than July 2012 and the second-highest reading since April 2010.

April 2010 was the last month of that year's tax credit which granted home buyers up to $8,000 off of their federal tax bill.

As compared to one year ago, sales of new homes are higher by 28%.

Furthermore, during the same time frame, the median sale price of a new home moved higher by 17 percent. The rising prices, in part, are the result of a shrinking national new home inventory. 

When August ended, there were just 141,000 homes for sale nationwide -- a 12% drop from the year prior. This suggests that home builders have stopped building without buyers; that some lessons were learned in last decade's homebuilding frenzy.

At today's pace of home sales, the entire stock of new homes nationwide would sell out in 4.5 months. As a comparison point, in January 2009, the new home supply reached 12.1 months.

With home supply below 6.0 months, analysts say, it signifies a "seller's market" and home supplies have not been north of 6.0 months since October 2011. And, based on recent homebuilder confidence surveys, supply doesn't appear headed back over 6.0 months anytime soon.

Builders in Minnesota and nationwide report that prospective buyer foot traffic is at its highest point in 6 years. Low mortgage rates and affordable housing choices have held demand for new homes strong. Rising rents contribute, too.

For today's home buyers of new construction, then, shrinking supply amid rising demand portends higher home prices into 2013 and beyond. If you're a buyer of new construction, therefore, think about moving up your time frame. 

The best deals left in housing may be the ones you grab while the calendar still reads 2012. By January, low prices may be gone, and low rates may be, too.

Home Price Index Shows Values Rising 3.7% From One Year Ago

Tuesday, the Federal Home Finance Agency's Home Price Index (HPI) showed home values rising 0.2% on a seasonally-adjusted basis between June and July 2012, and moving +3.7% on an annual basis.

Home values have not dropped month-to-month since January of this year -- a span of 6 months.

For today's home buyers and sellers throughout Minneapolis , though, it's important to recognize on what the HPI is actually reporting.

Or, stated differently, on what the HPI is not reporting. The Home Price Index is based on home price changes of some homes, of certain "types", with specific mortgage financing only.

As such, it excludes a lot of home sales from its results which skews the final product. We don't know if home values are really up 0.2% this month -- we only know that's true for the home that the HPI chooses to track.

As an example of how certain homes are excluded, because the HPI is published by the Federal Housing Finance Agency and because the FHFA gets its access to home price data from Fannie Mae and Freddie Mac, it's upon data these two entities upon which the Home Price Index is built.

Home price data from the Federal Housing Administration (FHA), from local credit unions, and from all-cash sales, for example, are excluded from the HPI because the FHFA has no awareness that the transaction ever happened.

In 2006, this may not have been a big deal; the FHA insured just 4 percent of the housing market at the time. Today, however, the FHA is estimated to insure more than 20% of new home purchases. Furthermore, in August, more than 1 in 4 sales were made with cash.

None of these home sales were included in the HPI.

Furthermore, the Home Price Index excludes certain home types from its findings.

Home sales of condominiums, cooperatives, multi-unit homes and planned unit developments (PUD) are not used in the calculation of the HPI. In some cities, including Chicago and New York City, these property types represent a large percentage of the overall market. The HPI ignores them.

Like other home-value trackers, the Home Price Index can well highlight the housing market's broader, national trends but for specific home price data about a specific home or a ZIP code, it's better to talk with a real estate agent with local market knowledge.

Since peaking in April 2007, the Home Price Index is off 16.4 percent.

Existing Home Sales Leap To 2-Year High

The home resale market put forth another strong data set last week. Home sales prices are higher nationwide and sales volume has moved to a 2-year high.

According to the National Association of REALTORS®, 4.82 million "existing homes" sold on a seasonally-adjusted, annualized basis in August, representing a near 8 percent improvement from the month prior and a nine percent jump from August 2011.

An existing home is a home which has been previously occupied.

Home sales were unevenly split across price tiers, with more than half of all homes selling for less than $250,000. This suggests that the first-time home buyers and real estate investors continue to be active in today's market as a foundation for growth is built.

According to the Existing Home Sales data :

• First-time buyers accounted for 31% of all home sales
• Real estate investors accounted for 18% of all home sales
• Other, repeat buyers accounted for 51% of all home sales

Also noteworthy is that "distressed homes" accounted for the smallest percentage of overall home sales since the real estate trade group starting tracking such data.

In August, homes in various stages of foreclosures accounted for 12% of all sales and sold at an average discount of 19 percent below market value. Short sale homes accounted for 10% of all sales and sold at an average discount of 13 percent below market value.

Of all the data in the August Existing Home Sales report, though, perhaps most relevant to today's buyers is the shrinking national housing supply.

At August's end, there were 2.47 million homes listed for sale nationwide, a three percent increase from the month prior. However, because the pool of available home buyers is increasing more rapidly than the number of homes for sale, housing supplies fell 0.3 months to 6.1 months.

This means that at the current pace of sales, the entire housing supply would be sold by March 2013.

For today's home buyers, home affordability appears poised to worsen. Mortgage rates and home prices remain low today, but market conditions like these rarely last long. Talk to your real estate agent about what options you have ahead of you. 2012 is coming to a close.

By 2013, the housing recovery may be fully underway. 

What's Ahead For Mortgage Rates This Week : September 24, 2012

Mortgage markets improved for the second consecutive week last week as demand for U.S. mortgage-backed bonds remained high. A series of economic reports showed strength in housing and a stability in jobs.

Wall Street looked past it, however, to send mortgage rates to their lowest levels in history.

One week into the Federal Reserve's newest bond-buying program, the stimulus appears to be working.

According to Freddie Mac, the average 30-year fixed rate mortgage rate slipped to 3.49% last week for borrowers willing to pay an accompanying 0.6 discount points at the time of closing. Discount points are a one-time closing costs where 1 discount point is equal to one percent of your loan size.

3.49% marks a new all-time low for the 30-year fixed rate mortgage. 

The 15-year fixed rate mortgage rate fell to a new all-time low last week, too, dropping to 2.77% with the same accompanying 0.6 discount points.

Mortgage rates in Minnesota fell despite strong housing data.

• Housing Starts rose 5.5% to a 2-year high
• Existing Home Sales rose 7.8% to a 2-year high
• Building Permits rose 0.2%

Notably, according to the National Association of REALTORS®, the national existing home supply slipped to 6.1 months last month -- very close to the 6.0-month marker which separates a "buyer's market" from a "seller's market".

If supplies continue lower, home prices may rise more quickly than expected into 2013. Median home sale prices are already 9.5% higher as compared to one year ago.

This week, more housing data is set for release including the home value-tracking Case-Shiller Index and FHFA Home Price Index. Both are expected to show rising home prices as compared to the last recorded month, and one year ago. In addition, the National Association of REALTORS® releases its Pending Home Sales Index.

Lastly, and likely most important to mortgage rates and home affordability in Minneapolis , the government releases its Personal Consumption Expenditures (PCE) report Friday. PCE is the Federal Reserve's preferred inflation gauge. An unexpected increase is expected to move mortgage rates higher.