With the passing of each week it becomes increasingly difficult to argue that housing isn’t in full-recovery mode. This week’s data makes it nearly impossible, considering that sales of new homes spiked 9.6%, in July, to an annual pace of 433,000 units. The “experts” had expected sales to post at only 390,000 units. The increase was the largest since February 2005, helping to force the inventory of new homes down to a 7.5-month supply, the lowest in 16 years.
Even more encouraging, the most recalcitrant housing bear is starting to turn bullish. Robert Shiller, co-creator of the S&P/Case-Shiller home-price index, told Bloomberg that “we might be seeing a turnaround.” Understated, to be sure, but that’s Shiller’s style. As for his index, 18 of the 20 cities tracked showed improvement in June, up from eight in May, four in April, and only one in March.
Detractors will counter that the recovery is concentrated in lower-priced homes. True, but that’s changing as well. Toll Brothers, a luxury homebuilder, stated that declining cancellations and firming prices has allowed the company to reduce incentives and raise prices in selected communities. To quote Toll Brothers Chairman and CEO Robert Toll, “We believe that customers are recognizing that now is the time to get into the market to take advantage of near-record affordability in what is still, for now, a buyer’s market.”
More optimism can be gleaned from the fact that housing isn’t the only big-ticket sector showing signs of recovery. Orders for durable goods – those meant to last several years – jumped 4.9% in July, posting the biggest increase in two years. Yes, the “cash-for-clunkers” program was a contributing factor, but even without this incentive, other durable goods orders moved ahead 0.8%.
The gross domestic product numbers also suggest that all, if not well, is getting better. On that front, the government says the economy shrank at an annual rate of 1% in the second quarter, a better-than-expected showing. The drop, while representing a record fourth consecutive decline, was far smaller than the previous two quarters. It also was stronger than the 1.4% decline that many economists had expected.
Finally, mortgage rates continue to hold steady, a sign that inflation remains a non-issue. The 30-year fixed-rate loan continues to hold at 5.5% while the 15-year fixed-rate and five-year adjustable-rate loans continue to hold at around 4.9%. Today’s housing market remains a buyer’s market, with low prices and low borrowing rates, but keep in mind Mr. Toll’s quote, “for now.”
With the passing of each week it becomes increasingly difficult to argue that housing isn’t in full-recovery mode. This week’s data makes it nearly impossible, considering that sales of new homes spiked 9.6%, in July, to an annual pace of 433,000 units. The “experts” had expected sales to post at only 390,000 units. The increase was the largest since February 2005, helping to force the inventory of new homes down to a 7.5-month supply, the lowest in 16 years.
Even more encouraging, the most recalcitrant housing bear is starting to turn bullish. Robert Shiller, co-creator of the S&P/Case-Shiller home-price index, told Bloomberg that “we might be seeing a turnaround.” Understated, to be sure, but that’s Shiller’s style. As for his index, 18 of the 20 cities tracked showed improvement in June, up from eight in May, four in April, and only one in March.
Detractors will counter that the recovery is concentrated in lower-priced homes. True, but that’s changing as well. Toll Brothers, a luxury homebuilder, stated that declining cancellations and firming prices has allowed the company to reduce incentives and raise prices in selected communities. To quote Toll Brothers Chairman and CEO Robert Toll, “We believe that customers are recognizing that now is the time to get into the market to take advantage of near-record affordability in what is still, for now, a buyer’s market.”
More optimism can be gleaned from the fact that housing isn’t the only big-ticket sector showing signs of recovery. Orders for durable goods – those meant to last several years – jumped 4.9% in July, posting the biggest increase in two years. Yes, the “cash-for-clunkers” program was a contributing factor, but even without this incentive, other durable goods orders moved ahead 0.8%.
The gross domestic product numbers also suggest that all, if not well, is getting better. On that front, the government says the economy shrank at an annual rate of 1% in the second quarter, a better-than-expected showing. The drop, while representing a record fourth consecutive decline, was far smaller than the previous two quarters. It also was stronger than the 1.4% decline that many economists had expected.
Finally, mortgage rates continue to hold steady, a sign that inflation remains a non-issue. The 30-year fixed-rate loan continues to hold at 5.5% while the 15-year fixed-rate and five-year adjustable-rate loans continue to hold at around 4.9%. Today’s housing market remains a buyer’s market, with low prices and low borrowing rates, but keep in mind Mr. Toll’s quote, “for now.”
How Technology Helped Avert Disaster:
The economy was never going to get as bad as many had thought, and by many we mean the doomsayers predicting a replay of the 1930’s. Reason being, markets are too efficient and too knowledgeable today; many people are following all segments of the economy, thanks in large part to today’s information and communications technology.
A stock-market analogy is in order: Back in the 1930’s, Ben Graham, Warren Buffett’s mentor, discovered that buying stocks trading at dirt-cheap prices proved highly remunerative. Graham would parse financial statements for companies with a lot of cash and little debt – a tedious and time-consuming endeavor at the time. Graham’s modus was to buy companies for their current assets and get everything else – land, plant, and equipment – free. Graham’s strategy can’t be replicated today because information is so widely and cheaply disseminated that investors pounce before companies reach such levels.
Homes aren’t homogeneous like stocks, but there are many more information-savvy buyers vetting housing opportunities today than there were in the 1930’s, so prices – on the national level – are highly unlikely to collapse. (They can collapse in niche, depressed markets – inner-city Detroit, for example – but that’s always been the case.) Of course, there is always a risk of buying too soon, but buying too soon is still usually remunerative over the long run. The same can’t be said for buying too late.
*Disclaimer: This Newsletter is for informational purposes only. The information contained herein may not be applicable to every situation or jurisdiction and we urge you to consult your professional advisor prior to acting on information contained herein. The content, accuracy and opinions expressed herein are not verified or endorsed by the sponsor hereof.
Mortgage Matters is Courtesy of Lori Donnelly, Vice-President of Lending, M&I Bank, Minneapolis.
Direct: 612-904-8129
http://www.mibank.com/ldonnelly
