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Housing Market Not As Healthy As Low End Would Suggest

November 18, 2009

For months now we’ve been hearing of the housing market picking up, starting with the low end. We’ve seen a healthy uptick in volume, and even price increases, but we’ve been skeptical about the durability. The reason being is that home lending by the FHA has filled the vacuum left by the departure of the conventional lenders. The percentage of loans done which are FHA has grown exponentially in the past two years.  What’s more is that there has been a housing credit propping up the market in much the same way Cash-For-Clunkers did for cars in July and August, and along with low rates, the FHA program provides loans with only 3.5% down.

We’re not quite convinced yet and the numbers that were just released, both on housing starts and purchase mortgage apps reveal the weakness.
So let’s start with housing starts:

Builders in October unexpectedly broke ground on fewer U.S. houses as the sales outlook darkened with the looming expiration of a government tax credit and mounting joblessness.

The 11 percent plunge in starts to an annual rate of 529,000, the lowest level since April, followed a 592,000 pace the prior month, Commerce Department figures showed today in Washington. Building permits, a sign of future construction, also decreased.

One month doesn’t make a trend, but if you “zoom out” you’ll see things are going sideways at best. The positive spin is that population growth will prompt these numbers to eventually pick up, driven by job centers. The areas that fail to create jobs or rely heavily on construction, well they better think of a Plan B.

On the mortgage application front, the numbers are part of the weekly release, but indicate that demand is waining. Mortgage rates are at an all-time low, so the question is how much lower can they go? Not much, so when rates start to move north then demand will fall as people pull away from the market. In addition, refinances will also begin to fall off as well.

Mortgage applications for purchases in the U.S. fell last week to the lowest level in 12 years, indicating the housing market is facing a hurdle with unemployment at a 26-year high.

The Mortgage Bankers Association’s index of applications to buy a home dropped 4.7 percent in the week ended Nov. 13 to 210.6, the lowest level since November 1997. The total applications index fell 2.5 percent to 611.7 from 627.5.

We can provide all the tax credits houses we want, but unless we get jobs moving it simply isn’t sustainable. What the government is essentially betting (better yet, hoping) is that if they can buoy the housing market until the economy recovers, then they will look like geniuses. That is a big gamble and so far the plan doesn’t seem to be working because they forgot about helping people pay the actual mortgages (jobs!), and there is a huge backlog of foreclosures which need to be dealt with. There is also the issue of how well the “permanent” mortgage modifications work out as well.

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Categories: Market Data | Trends
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Joshua November 18, 2009

nothing to see here. homebuyer tax credit managed to achieve a quarterly pop and people pulled back when they thought the credit would expire. expect these numbers to make an "unexpected" jump in the off season (dec-jan) when builders rush to add some finished supply for the buying season and before the extended credit expires. then it will dip again.

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