More Signs of Housing Stabilization
Momentum in equity markets came from an unlikely source on Tuesday, June 2nd: pending home sales. The pending home sales index is not typically a market-mover but came into the spotlight today after rising 6.7% from the previous month and 3.2% from April of last year. It was also the third straight month that the index has increased. After both new and existing home sales reported increases in April, the rising in the pending home sales index shows further signs of stabilization in the housing market. If the housing market is able to maintain demand, which is currently being driven by the government's enhanced homebuyer tax credit and high levels of affordability, then hopes for an economic recovery may come much sooner.
Several indications show that conditions are improving. Money has started to flow back onto Wall St. Even with the recent bankruptcies at both GM and Chrysler, the S&P 500 index ended trading on Tuesday, June 2nd, at its highest levels since November 5. Leading economic indicators in April recorded its first monthly increase since June 2008. Consumer confidence jumped in May to its highest levels since September. Homebuilder stocks have rallied while homebuilder confidence is also at its highest levels since September. While these signs are encouraging, the economy is most certainly not out of the woods yet. As we look forward to May's employment report for further signs on the state of the labor market, the reorganization of the domestic automobile industry will likely put a damper on jobs and consumer spending in the near-term.
Both new and existing home sales posted increases in April. Although the gains were minimal, it remains a positive sign that home sales continue to see sustained demand. The rise in sales activity suggests that the housing market may finally be stabilizing.
New home sales increased a slight 0.3% in April to a seasonally adjusted 352,000 homes from a downwardly revised March figure of 351,000. Sales for the previous three months were revised lower by 3,000 units. In April, new home inventories declined to 296,000 from a March figure of 308,000 on a non-seasonally adjusted basis. Non-seasonally adjusted units of unsold inventory have not recorded a monthly increase since May 2007 and are now at their lowest levels since May 2001 as builders continue to scale back building activity. There are now 10.1 months of supply on a seasonally-adjusted basis based on the current sales pace which is the lowest it has been since February 2008. In April, median new home prices increased to $209,700 from a revised March figure of $202,200. Median new home prices in March were the lowest they had been since December 2003 before the increase in April. Median new home prices increased 3.7% from last month but are down 14.9% from the same year-ago period.
Annualized sales of total existing homes in April increased 2.9% from March levels to 4.680 million units. Sales of existing homes are still down 3.5% from the 4.850 million units in April 2008. Median existing home prices in April increased slightly to $170,200 from $169,900 in March. This is the third straight month that existing home prices have increased and the highest they have been since December. Existing home inventory increased for the third straight month in April as sellers put their homes onto the market for the busy spring home-buying season. Inventory of existing homes increased 8.8 percent to a preliminary 3,968,000 units from 3,648,000 units in March. At the current sales pace, there are 10.2 months of supply of existing homes on the market.
National average mortgage rates increased from the previous week to 4.91% in the latest Primary Mortgage Market Survey released weekly by Freddie Mac on May 28th. Rates are now back up to their highest levels since the middle of March. Average fixed-rate mortgages have remained under 5.0% for the past 11 weeks. In the week ending May 22nd, the MBA's seasonally-adjusted Purchase Index increased slightly to 256.6 from 254.0 in the previous week. The latest figure reflects a 1.02% increase from last week but a 27.25% drop from the same period last year.
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