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The Census Bureau's regularly scheduled monthly report on New Home Sales was released this morning. The annual pace of 616k was right in line with the median forecast of 617k. This is technically an improvement, but only because the previous month was revised down to 602k from 640k. In the big picture, it doesn't much matter if today's data is a bit better or worse than last month's. It's unequivocally better than it was on several occasions in the middle of 2022 when the annual pace was closer to 550k. If sales can avoid revisiting that territory, 550k will increasingly look like a long-term floor in the bigger picture. If sales numbers are finally bouncing, some credit could go to inventory finally doing the same. After being squeezed down to all-time lows in early 2020, new home inventory slowly began to grow. It didn't eclipse 2019's highest levels until several months into 2022. We can credit the combination of sharply higher rates and prices for sapping demand and leaving excess inventory on the shelf for builders. Here too, the chart looks like it wants to bounce (but against a ceiling for inventory as opposed to a floor for sales numbers). It's a bit too soon to declare victory. Whereas 2022 was clearly a year for rising interest rates, it remains to be seen how quickly that trend will be reversed in 2023. If inflation continues to fall and the economy softens, rates can come down faster. This isn't the only input for New Home Sales of course, but when the average 30yr fixed rate was well over 7%, it was certainly keeping more prospective buyers on the sidelines versus the mid-to-low 6's seen over the past 2 months.
Mortgage loan activity posted a third straight gain during the week ended January 20 . The Mortgage Brokers Association (MBA) said its Market Composite Index, a measure of mortgage loan application volume, increased 7.0 percent on a seasonally adjusted basis from one week earlier and rose 1 percent on an unadjusted basis. The week’s results included an adjustment to account for the observance of Martin Luther King Day. The Refinance Index moved 15 percent higher but was 77 percent below activity during the same week one year ago. That share of the week’s applications increased to 31.9 percent from 31.2 percent the previous week. [refiappschart] The seasonally adjusted Purchase Index gained 3 percent and was 1 percent higher on an unadjusted basis. Activity was 39 percent lower than the same week one year ago. [purchaseappschart] “Mortgage rates declined for the third straight week, which is good news for potential homebuyers looking ahead to the spring homebuying season. Mortgage rates on most loan types decreased last week and the 30-year fixed rate reached its lowest level since September 2022 at 6.2 percent,” said Joel Kan, MBA’s Vice President and Deputy Chief Economist. “Overall applications increased with both gains in purchase and refinance activity, but purchase applications remained almost 39 percent lower than a year ago. Homebuying activity remains tepid, but if rates continue to fall and home prices cool further, we expect to see potential buyers come back into the market. Many have been waiting for affordability challenges to subside.”
Existing home sales fell back for the 11th straight month in December according to the National Association of Realtors® (NAR) The month’s sales of pre-owned single-family houses, townhouses, condominiums, and cooperative apartments were at a seasonally adjusted annual rate of 4.02 million units. This is down 1.5 percent from November’s activity and 34.0 percent lower than in December 2021. Single-family home sales declined by 1.1 percent to a seasonally adjusted annual rate of 3.60 million from 3.64 million in November and were down 33.5 percent from the previous year. Existing condominium and co-op sales came in at a seasonally adjusted annual rate of 420,000 units, a decline of 4.5 percent and 38.2 percent from the two earlier periods. [existinghomesdata] The December results were slightly better than expected. Analysts polled by Econoday and Trading Economics each came in with a consensus estimate of 3.97 units. For the entirety of 2022 there were 5.03 million existing homes sold. This was 17.8 percent fewer than in 2021, as last year’s rapidly escalating interest rate environment weighed on the residential real estate market. “December was another difficult month for buyers, who continue to face limited inventory and high mortgage rates,” said NAR Chief Economist Lawrence Yun. He said, however, he expects sales to pick up again soon since mortgage rates have markedly declined after peaking late last year.