Pending home sales dip due to supply shortage

Contracts to buy previously owned U.S. homes slipped in August due to a shortage of lower priced inventory in most of the country, an industry group said on Thursday.

The National Association of Realtors said its Pending Home Sales Index, based on contracts signed in August, fell 2.6 percent to 99.2, but was 10.7 percent higher than last year.

July's reading was revised up to 101.9, the highest level since April 2010, when buyers were racing to use the home-buyer tax credit before the deadline, the group said.

"The performance in month-to-month contract signings has been uneven with ongoing shortages of lower priced inventory in much of the country," the association's chief economist, Lawrence Yun, said in a statement.

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U.S. 30-Year Mortgage Rates Fall to New Record Low

U.S. mortgage rates declined to record lows as the Federal Reserve pushed down borrowing costs by resuming purchases of mortgage-backed securities.

The average rate for a 30-year fixed loan fell to 3.4 percent in the week ended today from 3.49 percent, McLean, Virginia-based Freddie Mac said in a statement. It was the lowest in data going back to 1971. The average 15-year rate dropped to 2.73 percent, also a record, from 2.77 percent.

The housing market has been showing signs of recovering as low interest rates draw in buyers who are competing for a limited supply of homes. Rates declined after the Fed’s Sept. 13 announcement that it would buy $40 billion of securities per month as part of measures to stimulate the economy. 

“We’ve already seen low mortgage rates even before the Fed action,” said Anika Khan, a senior economist with Wells Fargo & Co. in Charlotte, North Carolina. “We’ll continue to see mortgage rates come down. That means affordability will continue to be high.” 

Demand for homes remains choppy, with contracts to buy previously owned properties falling 2.6 percent in August after a revised 2.6 percent gain in July that was more than initially reported, the National Association of Realtors said today. 

Purchases of new U.S. homes fell 0.3 percent to a 373,000 annual pace in August, following a revised 374,000 rate in July that was the strongest since April 2010, figures from the Commerce Department showed yesterday. Home prices in 20 U.S. cities climbed more than forecast in July from a year earlier, according to an S&P/Case-Shiller report. 

Bond Yields

While borrowing costs are falling, they could be even lower. Since the Fed’s announcement, the rates offered for new 30-year loans have fallen by 0.19 percentage point, compared with a drop of about 0.6 percentage point for yields on the bonds into which the loans get packaged, according to data compiled by Bloomberg and Bankrate.com. 

The gap between the two, which typically signals increasing lender revenue when it widens, reached a record of more than 1.7 percentage point yesterday.

To contact the reporter on this story: Prashant Gopal in New York at pgopal2@bloomberg.net
To contact the editor responsible for this story: Kara Wetzel at kwetzel@bloomberg.net

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August Home prices highest level in more than 5 years

(Reuters) - New home sales held near two-year highs in August and prices vaulted to their highest level in more than five years, adding to signs of a broadening housing market recovery.


The Commerce Department said on Wednesday sales slipped 0.3 percent to a seasonally adjusted 373,000-unit annual rate, but the decrease was from an upwardly revised 374,000-unit July pace that was the fastest since April 2010.

From a year ago, sales were up 27.7 percent last month.
At the same time, the median price of a new home increased a record 11.2 percent in August to $256,900 -- the highest level since March 2007. Compared to August last year, the median sales price jumped 17 percent, the largest rise since December 2004.
The report was in keeping with other data that have suggested a turn-around in the housing market, which collapsed in 2006, igniting the 2007-09 recession.

Home resales surged last month, homebuilder sentiment jumped to a six-year high in September and home prices in 20 major metropolitan areas rose in July for a sixth straight month, recent reports have shown.

Still, the housing market lacks sufficient strength to take the baton from the faltering manufacturing sector as the main driver of the U.S. economic recovery.

"There are increased signs that the housing recovery is now on a more sustainable path, though its impact on overall economic activity will remain relatively modest at best over the near-term," said Millan Mulraine, a senior economist at TD Securities in New York.

U.S. financial markets were little moved by the data amid worries Spain's reluctance to ask for a full-blown bailout would prolong Europe's debt crisis. However, an index of housing-related stocks fell as the pace of home sales was not as strong as expected.

MISSING PISTON
The Federal Reserve targeted housing this month as a channel to spur faster economic growth.
Fed Chairman Ben Bernanke said housing was the "missing piston" in the recovery and the central bank announced it would buy $40 billion in mortgage-backed securities per month until the outlook for employment improved significantly.

Those measures have pushed mortgage rates to record lows, and led to a rebound in demand for loans to purchase homes last week, a second report showed. Fixed 30-year mortgage rates hit an all-time average low of 3.63 percent last week.

Home building is expected to add to gross domestic product growth this year for the first time since 2005.

Home builder Lennar Corp on Monday reported a 44 percent jump in orders for new homes during the third quarter, the sixth straight quarter of growth.

While residential construction accounts for only about 2.5 percent of GDP, economists estimate that for every new house built, at least three new jobs are created.

In addition, economists said rising home values could support consumer spending.
"The turn in home prices is important, not only because the housing industry is an important employer, but also the wealth effect created by rising home prices can lift consumer spending on other big-ticket items," said Steven Ricchiuto, chief economist at Mizuho Securities in New York.

The housing recovery is being driven by dwindling supplies of homes on the market, especially distressed properties that tend to sell well below their cost of construction.

Home builders are also keeping inventories lean.
The inventory of new homes on the market held near record lows last month. At August's sales pace it would take 4.5 months to clear the houses on the market, unchanged from July.
"For years after the collapse in housing, home builders have kept very lean inventories of new homes so any marginal pickup in sales activity leads to a notable pickup in building," said Ellen Zentner, a senior economist at Nomura Securities International in New York.
New home sales were up in three of the four regions, surging 20 percent to a near two-year high in the Northeast. Sales in the South fell 4.9 percent.
(Editing by Andrea Ricci and Tim Ahmann)

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Mortgage Rates 2.77% - Heading Even Lower?

Mortgage rates are beside the point. That may come as a surprise to members of the Federal Reserve. But then again, probably not.

The Fed’s third round of fiscal stimulus announced earlier this month differs from previous rounds in that it directly targets the housing market in an effort to create a domino effect that will ultimately create jobs and lift the broader economy.

Specifically, the central bank said it will start purchasing $40 billion in mortgage-backed securities each month, an open-ended policy designed to keep mortgage rates low and perhaps push them even lower.

But how much lower can they go? On Tuesday the national average for a 30-year fixed rate mortgage stood at an all-time low of 3.49%, according to mortgage servicer Freddie Mac. A 15-year mortgage can be had at 2.77%, also an all-time low.

Leif Thomsen, founder and chief executive of Walpole, Mass.-based home-loan lender said it doesn’t really matter anymore how much lower mortgage rates fall.

“It has nothing to do with the rates,” Thomsen said. “They’re perfectly fine where they are.”
What needs to change, he said, are lending guidelines that remain too strict for many potential homeowners who might otherwise be in a position to take advantage of the historically low rates and vast surplus of available homes.

Another thing that needs to change, according to Thomsen, is the status of millions of home owners whose mortgages are under water, meaning the amount they owe on their loan is greater than the value of their home.

Housing is the Right Target
Regardless of where mortgage rates go under the Fed’s newest round of quantitative easing, Thomsen said the central bank was right to target the housing industry because of the sector’s broad reach across the economy.

“That’s where we need to focus. Housing is such a huge percentage of GDP. When someone buys a new home, they’re not just buying a home. So much of the economy is tied to the housing industry,” he said.

In speeches and comments made after the new stimulus was announced on Sept. 13, Fed policy makers have suggested the latest move was an effort to maintain and hopefully build momentum for recent gains achieved in the housing market.

If mortgage rates fall a bit lower, that’s fine, the Fed members have said. But the real goal is to create a solid foundation beneath the fledgling recovery, one that generates increased demand and ultimately stimulates job creation in the myriad areas of the economy directly tied to housing – construction, retail, lending, etc.

There’s growing evidence to support that premise.
The latest S&P /Case Schiller Home Price Index, which gauges home values in 20 U.S. cities, rose 1.6% month-over-month in July, slightly lower than economists had hoped for but a gain nevertheless. It was the third straight month prices rose in all 20 cities.

Anthony Sanders, a finance professor at George Mason University, agrees that mortgage rates are neither the problem nor the solution.

“Unless (mortgage servicers) Fannie Mae and Freddie Mac loosen up some of their credit standards or the banks get back in the game for their own portfolios, the Fed could lower mortgage rates to minus 10% and it won’t stimulate a housing recovery. The problem really is that credit is too tight and money velocity is too low,” Sanders said.

Money velocity, a fairly arcane gauge of economic activity, is defined by the Fed as “the rate of turnover in the money supply,” or “the number of times one dollar is used to purchase final goods and services included in the GDP.”

Fiscal Cliff Could Kill Momentum
If the rate of velocity is swift it’s good for the economy. It means transactions are taking place and money is exchanging hands. If the velocity rate is slow it’s bad for the economy because consumers and institutions (banks and corporations) are holding on to money and therefore impeding transactions.

The latter is currently the case, and it’s getting worse.
According to the Fed, which tracks money velocity, the measure fell again in the second quarter of 2012 and has hit its lowest level in five decades.

Unless banks start opening their coffers and lending money again, specifically in the form of mortgages, Sanders said no amount of Fed stimulus will help spur an economic recovery.
What’s more, any housing recovery that’s gaining steam through the end of 2012 is bound to be derailed by the looming fiscal cliff, Sanders warned.

If Congress fails to reach a compromise on spending and the Bush-era tax cuts are allowed to expire, taxes will rise for millions of Americans. If that happens demand for homes is certain to plummet again. “The housing market is partially self-correcting because housing prices are going up. But when the fiscal cliff hits, let’s see how much legs the housing recovery has,” Sanders said

Sanders described the government’s housing policy as “schizophrenic” because on the one hand the Fed is trying to pump up demand by lowering mortgage rates while at the same time the Obama administration has said it will raise taxes by allowing the Bush tax cuts to expire for those making $250,000 or more. (Republicans want to extend or make the cuts permanent for all incomes.)
“They’re pulling in opposite directions. They can’t have it both ways,” he said.

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