Monday Sector Strength
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The ECRI leading index of residential real estate prices has started to firm. It takes 6-7 months of strength in this leading indicator before ECRI will change its view on real estate from negative. I'm sure it will include a warning for caution towards real estate regardless of how the indicator performs considering the seriousness of the current world wide conditions.
The latest comments from Mortgage Matters offer more encouragement. Some of their comments are pasted below, dated Mar-31-2008.
"The laws of economics really do hold. Sales of existing homes rose to a 5.03 million annual rate in February, an unexpected 2.9% increase from January's revised 4.89 million annual rate, according to the National Association of Realtors last Monday. The news flew over the heads of the putative experts, who were calling for a drop to 4.85 million.
So why do the laws of economics hold? Increased sales are being spurred by lower prices. The median existing home price was $195,900 in February, down 8.2% from $213,500 in February 2007. Some of the same experts lamented the drop in price, but shouldn't have. Falling prices improve affordability and encourage people to make purchases, which is exactly what's beginning to occur.
The same holds true on the new-home front, where the median price decreased 2.7% to $244,000 and sales dropped 1.8% to a 590,000 annual rate, which, though a decrease, still beat the consensus estimate by 15,000 units. Just as important, the number of new homes for sale at the end of February dropped to 471,000, the fewest since July 2005, indicating builders are making headway in clearing the inventory glut. (Lower prices also motivate suppliers – builders in this case – to cut production.)
Lower prices have also stimulated mortgage activity. The Mortgage Bankers Association reported that its four-week moving average for the seasonally adjusted market index is up 11.3%, with the purchase index up 3.1% and the refinance index up 18.3%, thanks to recent Federal Reserve actions that have shored up the mortgage market by allowing the 30-year fixed-rate mortgage to remain below 6% and the 15-year fixed-rate mortgage to hang around 5.5%."
The group to watch now are the mortgage lenders. The decline in prices has been dramatic to say the least. The home builders and REITs are holding above the 50-day, but the lenders are not. This group probably needs to retest, hold then bounce back above the 50-day and remain above. This, combined with continued strength in the other two groups, will be the signal that the worst is over. I'm not buying these groups, but watching as a market indicator.
