Conflicting Data on Home Sales Highlights Mixed Week for Mortgage News
Recently-released data on home sales sent mixed signals to prospective buyers:
- The S&P/Case-Shiller index of home prices in 20 major markets showed a 14.4% year-over-year decline through the end of March, 2008
- The U.S. Commerce Department reported that the number of new home sales increased 3.3% in the month of April
While conflicting signals on housing might give home buyers reason to pause, two other developments might spur them to action:
- Revised GDP data strengthened the earlier indication that the U.S. economy avoided slipping into recession in the first quarter of 2008
- Mortgage rates broke out of a month-long holding pattern and showed hints of a possible upward trend
Interpreting the Housing Data
For buyers trying to figure out whether the housing market has hit bottom, the recent data only muddies the water. Is the housing market strengthening, as the Commerce Department data series suggests, or continuing to weaken, as the continued drop in the S&P/Case-Shiller numbers would indicate?
A closer look at both sets of data would suggest that the conclusion would have to fall on the side of continued weakness. While the Commerce Department information is a little more recent, single-month data can be deceptively volatile. Perhaps of greatest concern, the April release shows a modest 3.3% increase over a March home sales figure that was revised downward to an 11% decline. Overall, this does not look like a positive trend.
Meanwhile, the S&P/Case-Shiller numbers show not only that median home prices declined over the past year, but that the rate of decline has increased in each of the past four quarters. In short, despite sporadic signs of bottoming out, the housing market overall continues to show downward momentum.
The Other Factor
Before prospective buyers take this downward momentum as a sign to bide their time and wait for home prices to get cheaper, they should remember that there is another key factor in the total cost of housing, and that’s mortgage rates. At the end of May, 30-year mortgage rates edged upward to their highest rate since mid-March. At just over 6%, these mortgage rates remain very reasonable by historical standards, but buyers who are waiting out the housing market cannot assume that mortgage rates will stay in one place.
Mortgage rates tend to move upward on indications of inflation and/or economic strength. There has been no shortage of inflationary signals lately, and the latest estimate of first quarter GDP growth revised that estimate of economic activity upward. This revision was from 0.6% to 0.9%, and while this is hardly a sign of a robust economy, it does indicate that the U.S. remained that much further from a recession.
Again, mortgage rates are at reasonable levels, but if they continue to rise, they could counter any continued fall in housing prices. Therefore, would-be home buyers who can afford a home under current conditions would do well to start shopping now, because there is more than one factor in motion.
Tags: 2008, home sales, mortgage, mortgage news, mortgage rates, US economy
