Spring seems to be bursting out all over, but the housing market is confronting some headwinds (although we prefer the term vernal zephyrs), like high home prices, short inventories, and rising rates. This week we learned that pending home sales had rebounded strongly after two very disappointing months and February’s new home sales partially regained some footing.
With the predicted decline in refinancing, lenders have worried that purchase mortgages wouldn’t be able to fill the gap. Applications are now growing steadily, and this week refinancing had a surge that showed there is still some life left in that market.
New home sales are off to a ragged start in 2018. Sales fell by 7.8% in January after plunging 9.3% in December although an upward revision of about 30,000 annualized units did take a little of the sting out of the January loss. That recalculation, which brought January sales up to an annual rate of 622,000 units, also turned what might have been a small month-over-month improvement in February into a negative number. It all shook out to an annualized rate of 618,000 units in February, an 0.6% decline. The number was good enough however to restore sales to positive territory relative to a year earlier; up 0.5% from February 2017.
Pending home sales, a leading indicator for existing home sales, caught up a bit from a weather-plagued January decline of 4.7%. February’s increase of 3.1% still left the National Association of Realtors’ (NAR’s) Pending Home Sale Index (PHSI) lagging the previous February by 4.1%. The 2017 February number was a tough act to follow however; the PHSI index was at its second highest level since 2006.
Much of February’s rebound occurred in the Northeast where bad weather had drastically reduced contract signings in January. NAR’s chief economist, Lawrence Yun NAR’s warned that the serial blizzards in the region this month could send the March report into another spiral.
Yun said the spring market is in full swing, but its ultimate success will depend on how both buyers and sellers react to rising prices and higher rates. Some sellers, particularly those who refinanced in recent years, may wonder if they should sell and give up their current low interest rates. If they decide to stay put, it could dash expectations for increased inventories.
Another indication that the spring market is upon us has been the consistent week-to-week uptick in purchase mortgage applications. The Mortgage Bankers Association said the volume of those applications has risen in 8 of the 12 weeks in 2018 and were unchanged in a ninth. This has been especially encouraging for lenders who have watched refinance applications make an even steadier decline. The MBA’s Purchase Index gained another 3% last week but what was a little strange was a spurt in the Refinancing Index, up 7%. Rates were mixed, so that probably wasn’t a factor. None-the-less, the combination of purchasing and refinancing drove the MBS Market Composite Index to its second-best week of the year.
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