The Mortgage Corner
The Pending Home Sales Index, a forward-looking indicator based on contract signings, fell 1.0 percent to 104.7 in August from 105.8 in July, and is now 2.2 percent below August 2013 (107.1). Despite the slight decline, the index is above 100 – considered an average level of contract activity – for the fourth consecutive month and is at the second-highest level since last August.
Lawrence Yun, NAR chief economist, said contract signings are holding steady and fewer distressed sales and less investor activity is likely behind August’s modest decline. “Fewer distressed homes at bargain prices and the acknowledgement we’re entering a rising interest rate environment likely caused hesitation among investors last month,” he said. “With investors pulling back, the market is shifting more towards traditional and first-time buyers who rely on mortgages to purchase a home.”
And the S&P/Case-Shiller U.S. National Home Price Index, which covers all nine U.S. census divisions, recorded a 5.6 percent annual gain in July 2014. The 10- and 20-City Composites posted year-over-year increases of 6.7 percent.
Data through July 2014 show a significant slowdown in price increases. Nineteen of the 20 cities saw lower annual returns in July. Las Vegas, Miami and San Francisco were the only cities to report double-digit annual gains. Cleveland’s rate remained unchanged at +0.9% for the 12 months ending July 2014.
Las Vegas rose 12/8 percent, Miami 11 percent, and San Francisco 10.3 percent. The PHSI in the Northeast slipped 3.0 percent to 86.5 in August, but is still 1.6 percent above a year ago. In the Midwest the index fell 2.1 percent to 102.4 in August, and is 7.6 percent below August 2013.
Pending home sales in the South decreased 1.4 percent to an index of 117.0 in August, unchanged from a year ago. The index in the West rose for the fourth consecutive month (2.6 percent) in August to 102.1, but still remains 2.6 percent below August 2013.
The major reason for less investor demand is the fall in foreclosures and delinquent mortgages, as we said. Fannie Mae reported today that the Single-Family Serious Delinquency rate declined in July to 2.00 percent from 2.05 percent in June. The serious delinquency rate is down from 2.70 percent in July 2013, and this is the lowest level since October 2008.
Freddie Mac also reported that the Single-Family serious delinquency rate declined in July to 2.02 percent from 2.07 percent in June. Freddie's rate is down from 2.70% in July 2013, and is at the lowest level since January 2009. Freddie's serious delinquency rate peaked in February 2010 at 4.20%.
“The employment outlook for young adults is brightening and their incomes3 finally appear to be rising,” said Yun. “Jobs and income gains will help repay student debt and better position first-time buyers, setting the stage for improved sales growth in upcoming years.”
In fact, overall consumer incomes are rising. Personal income growth posted a 0.3 percent gain in August, following a 0.2 percent rise in July. The latest number matched expectations for a 0.3 percent advance. The wages & salaries component was even stronger with a 0.4 percent boost, following a 0.2 percent increase the month before.
Personal spending jumped 0.5 percent after no change in July, while there was no increase in the PCE inflation index at all, mainly due to falling gas prices. Strength was in the durables component which jumped 1.8 percent after no change in July. August reflected a jump in auto sales. Nondurable spending declined 0.3 percent after no change in July. Services jumped 0.5 percent in August after being unchanged the month before.
And with interest rates falling again—the 30-yr conforming fixed rate is back to 3.75 percent with 0 origination points—more first-timers in particular can afford to buy homes. We are of course speaking of the 18 to 35-yr olds of the so-called millennial generation who have taken longer to both find jobs and leave their parents’ home.
Harlan Green © 2014
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