A relatively healthy amount of data was out this morning.  The ICSC retail sales report was mixed again with a week over week decline of 0.6% and a year over year gain of 0.6%.  The Redbook’s chain store sales showed a gain of 0.1%.  All in all, the retail sales data is sluggish though marginally improved.The U.S. consumer is still showing no signs of real strength.

Pending home sales were much better than expected and came in at 6.7%.  The NAR report follows:

Record low mortgage interest rates boosted pending home sales for the third consecutive month, with some benefit now from the first-time buyer tax credit, according to the National Association of Realtors^®.

The Pending Home Sales Index,¹ a forward-looking indicator based on contracts signed in April, rose 6.7 percent to 90.3 from a reading of 84.6 in March, and is 3.2 percent above April 2008 when it was 87.5.

Lawrence Yun, NAR chief economist, said buyers are responding to very favorable market conditions. “Housing affordability conditions have been at historic highs, but now the $8,000 first-time buyer tax credit is beginning to impact the market,” he said. “Since first-time buyers must finalize their purchase by November 30 to get the credit, we expect greater activity in the months ahead, and that should spark more sales by repeat buyers.”

The Pending Home Sales Index in the Northeast shot up 32.6 percent to 78.9 in April and is 0.8 percent above a year ago. In the Midwest the index rose 9.8 percent to 90.4 and is 11.1 percent above April 2008. The index in the South slipped 0.2 percent to 93.0 in April but is 3.5 percent higher than a year ago. In the West the index rose 1.8 percent to 94.8 but is 2.9 percent below April 2008.

NAR President Charles McMillan, a broker with Coldwell Banker Residential Brokerage in Dallas-Fort Worth, said there are numerous buyer assistance programs around the country. “Some states are offering bridge loans that allow first-time buyers to use the tax credit for downpayment and closing costs, but there are many other local government and nonprofit programs available to buyers, depending on location,” he said.

“Just last week, HUD announced that qualifying buyers can use the tax credit for closing costs on FHA loans, to buy down the interest rate or make a larger downpayment. Buyers who are wondering about their options should contact a Realtor^®, who can advise consumers on the housing assistance programs and resources available in a given area.”

NAR’s Housing Affordability Index² is in record territory. The affordability index rose to 174.8 in April from an upwardly revised 171.9 in March, and was the second highest monthly reading on record after peaking at 176.9 in January of this year. The HAI is a broad measure of housing affordability using consistent values and assumptions over time, which examines the relationship between home prices, mortgage interest rates and family income; tracking began in 1970.

A median-income family, earning $60,900, could afford a home costing $296,800 in April with a 20 percent downpayment, assuming 25 percent of gross income is devoted to mortgage principal and interest. Affordability conditions for first-time buyers with the same income and small downpayments are roughly 80 percent of that amount. The affordable price was well above the median existing single-family home price in April, which was $169,800.

Yun cautions that the reporting sample for pending home sales is smaller than that of existing-home sales, so it is subject to greater variability. “In addition, the relationship between contracts on pending home sales and closings on existing-home sales is taking longer than in the past for several reasons,” he said. “Mortgage processing time has increased, it is taking many months to close on those homes requiring short sales with lender approval, and some sales are falling through at the last moment.”

The total number of existing-home sales is expected to improve but with dramatic local market variation in the timing of recovery. “The market has already bottomed in some areas, but this is an unusual housing cycle with some areas improving rapidly while others languish or decline,” Yun said.

 

There’s no denying that these figures are strong, however, it’s very normal to see strong figures this time of year.  Where the analyst’s came up with their 0.5% figure is beyond baffling.  In my opinion, this is nothing more than some seasonal strength and signs that we are seeing a slowdown in the level of deterioration.  Combine that with an analyst community that hasn’t accurately predicted anything in the last 25 years and you get “better than expected” data.  As you can see in the chart below housing ALWAYS sees a seasonal rebound in early summer.  

For those who still believe the housing market is going to scoot higher immediately I would point you to Japan’s housing market.  As I have mentioned before, bubbles almost always respond in similar price actions due to their similar causes: massive supply glut coinciding with massive demand slump.  It would not be unusual to see a sharp decline in U.S. housing followed by a period of hope followed by a period of stagnant/low growth.  If you’re curious what I might be referring to I would point you to any of the major bubbles of the last 25 years – Nikkei, Nasdaq, Gold, etc.  No bubble in the post WW2 economy has ever reached its prior peak within a 5 year period.  Those expecting a sharp rebound in housing based on this data are overlooking strong deflationary trends and strong seasonal data.   The stock market initially shot higher, but has since retraced the gains.  Today’s data is mostly a non-event in my opinion despite the smiles at the perennially bullish NAR.  

Update: It’s interesting to note this NY Times article that appears to conflict with the NAR’s opinion on foreclosures.