Real Estate Market Review 07-28-10

A Real Estate Market Review

We received three real estate reports through the first half of the week, so we thought it made worthy a review of the real estate market. The week's real estate activity offered June's New Home Sales Report, May's Case Shiller Home Price Index, and today's Weekly Mortgage Applications Report.

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Real Estate Market Review

Our real estate market review simply takes a look at the latest data releases, and puts them into context. We see an unfavorable economic environment and lending market combining with the expiration of government stimulus and drop-off of consumer confidence to take the real estate market into double-dip territory.

Weekly Mortgage Applications

The Mortgage Bankers Association today reported its Weekly Mortgage Applications Survey for the period ended July 23. The Market Composite Index took a hit this week, as mortgage rates rose a bit.

The Refinance Index fell 5.9% against the prior week mark, given increases in the average contracted rates on 30-year and 15-year fixed rate mortgages by 10 basis points (to 4.69%) and 7 bps (4.12%) respectively. This led the Market Composite Index down 4.4% on a seasonally adjusted basis. Given home purchase activity is less volatile, the increase in rates did not stop a 2.0% gain here over the prior week mark. Purchase activity was in fact the highest since the end of June. While this may partly reflect a normalization of business, post the pulling forward of activity by the First-Time Homebuyers Tax Credit (since expired), we doubt it signals a housing revival.

New Home Sales

In fact, New Home Sales were reported for June on Monday morning. While the monthly change in activity was impressive, as sales rose 23.6% over the revised annual pace of 267K for May, the absolute pace of sales in June at 330K was simply distressing. Sure, the result exceeded the soft economists' consensus forecast for 310K, but that offers no solace to unhappy homebuilders. Heck, sales were down sharply from the prior year comparable of 396K, and that was a bad number!

On a positive note, sales recovered most in the important South region, where May's 35.9% drop turned the corner to June's 33.1% rise. Activity remained weak in the West and Midwest, and recovered some in the Northeast.

"...based on the New Home Sales data, prices softened in June"

Putting things into perspective, June's sales pace of 330K was only surpassed in its direness over the last 12 months by May's stagnant state. In other words, real estate and stock investors had little reason to put money to work. Inventory improved in June to 7.6 months, from May's 9.6, but recall that this is a direct result of the sales pace change. And, oh by the way, based on the New Home Sales data, prices softened in June... The median price of a new home sold in June fell 1.4%, while the average price fell 9.8%. This contrasts against the mid-single digit increase in prices for existing homes in June.

S&P Case Shiller Home Price Index

Given we have current home price data from within the Existing & New Home Sales Reports for June, why would we give a darn about the lagged S&P Case Shiller information for May? And given who posts this report, and all the mistakes the agency made over the last few years rating mortgage backed securities investment grade (a catalyst for the crisis), why would we trust them to provide accurate data here? For informational purposes, the 10-City seasonally adjusted index recorded a 0.5% price increase in May. You should note, though, that the S&P Case Shiller data is a three-month average that includes March and April, two incentive-lifted periods.

Conclusion

The residential real estate market still stinks.

Perhaps we should expand a bit. Real estate still stinks, and with the anchored unemployment situation and dieing consumer confidence, I expect prices to take a double-dip. Thus, if I were considering an investment, I would reconsider it for a ways down the road.



Relevant Tickers include Bank of America (NYSE: BAC), J.P. Morgan Chase (NYSE: JPM), Goldman Sachs (NYSE: GS), Morgan Stanley (NYSE: MS), Citigroup (NYSE: C), Wells Fargo (NYSE: WFC), PNC Bank (NYSE: PNC), Toronto Dominion (NYSE: TD), Bank of NY Mellon (NYSE: BK), US Bancorp (NYSE: USB), BOK Finanical (Nasdaq: BOKF), M&T Bank (NYSE: MTB), NVR Inc. (NYSE: NVR), D.R. Horton (NYSE: DHI), Pulte Group (NYSE: PHM), Gafisa SA (NYSE: GFA), Toll Brothers (NYSE: TOL), Lennar (NYSE: LEN), MDC Holdings (NYSE: MDC), KB Home (NYSE: KBH), Ryland Group (NYSE: RYL), Meritage Homes (NYSE: MTH), Standard Pacific (NYSE: SPF), Hovnanian Enterprises (NYSE: HOV), Beazer Homes (NYSE: BZH), Brookfield Homes (NYSE: BHS), Avatar Holdings (Nasdaq: AVTR), Xinyuan Real Estate (NYSE: XIN), M/I Homes (NYSE: MHO), Comstock Homebuilding (Nasdaq: CHCI), Senior Housing Properties Trust (NYSE: SNH), NYSE: DMM, NYSE: UMM, Fidelity Select Construction & Housing (Nasdaq: FSHOX), China Housing (Nasdaq: CHLN), Equity Residential (NYSE: EQR), Avalonbay Communities (NYSE: AVB), UDR, Inc. (NYSE: UDR), Essex Property Trust (NYSE: ESS), Camden Property Trust (NYSE: CPT), BRE Properties (NYSE: BRE), Apartment Investment Management (NYSE: AIV), Home Properties (NYSE: HME), Mid-America Apartment (NYSE: MAA), Equity Lifestyle Properties (NYSE: ELS), American Campus Communities (NYSE: ACC), Colonial Properties Trust (NYSE: CLP), American Capital Agency (Nasdaq: AGNC), Sun Communities (NYSE: SUI), Education Realty Trust (NYSE: EDR), Associated Estates Realty (NYSE: AEC), PennyMac Mortgage Investment (NYSE: PMT) and Two Harbors Investment (NYSE: TWO).

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