The National Association of Realtors reported this morning that sales of existing homes fell a sharper-than-expected 27.2% in July. As Celia Chen, analyst for Moody's DismalScientist publication, points out - before panicking it is worthwhile to note that the three-month moving average of home sales is about on par with sales in the first half of the year.
In large part it is the government's earlier homebuyer tax credit program that continues to distort the month-over-month home sales data. After surging to a two-and-a-half year high last November, the month of the tax credit's initial expiration, demand dropped for three straight months. Demand then recovered in March and April, which was the deadline for signing contracts, before starting on its downward trajectory once again.
Smoothing out the impact of the tax credit, it is evident home sales are trending upward at a snail's pace after hitting a bottom at the first of the year. The bad news is the improvement is almost imperceptible, even though mortgage interest rates are at record low levels and home prices are at their lowest in years. This morning's report highlights the simple fact that demand for single family homes is far more strongly influenced by job creation - than the point at which mortgage interest rates happen to be at any given time. It is probably apparent to even a casual observer of the recent home sales news that if one intends to support the dream of American homeownership -- the primary focus must be on job creation and restoring consumer confidence - while mortgage interest rates can be left to seek their natural level.
Hmmm - I wonder if anybody in Washington is listening to the very clear message the housing sector is broadcasting on every available channel. I think I know the answer to my question -- but one can always hope.
Uncle Sam will be in the credit market again today looking to borrow $37 billion in the form of 2-year notes. The yield on this security is hovering very near record lows, and there are some analysts suggesting investors may think twice before jumping in at record high prices. It appears to me that outside of corporate bonds and their attendant credit risks - there are few alternatives that offer the safe-haven to be found in Treasury obligations and agency eligible mortgage-backed securities. Today's two-year note auction may not be a blockbuster, but it will likely draw decent demand. If my assessment proves accurate, this event is unlikely to create much, if any reaction in the mortgage market. The auction will conclude at 1:00 p.m. ET
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