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Pending Home Sales Decrease In October On Buyer Hesitation
The National Association of Realtors, NAR, put out its Pending Home Sales Index. It tracks the number of home sales under contract. This tends to lead the actual home sales data by a few months.
The real estate recovery has been uneven. Some parts of the country are outperforming others. The Pacific and Mountain states outperformed the rest of the country over the past two years. The Middle Atlantic and New England states have underperformed.
Rising home prices make it possible for companies to raise their prices and increase their gross margins. That said, it appears that buyers are beginning to experience sticker shock.
A shortage of skilled labor has been a problem for the homebuilding and mortgage industries. Since the bubble burst, employment in these sectors dropped so dramatically that many skilled workers found jobs in other economic sectors.
Homebuilders like Lennar (LEN), PulteGroup (PHM), D.R. Horton (DHI), and Toll Brothers (TOL) have been reporting near-record gross margins. They’ve been able to increase prices and contain costs.
Housing starts are released jointly by the Census Bureau and the Department of Housing and Urban Development. Analysts use the information to anticipate future production for homebuilders.
The National Association of Realtors (or NAR) reports existing home sales once a month. The seasonally adjusted number reports the completed transactions in single-family homes, condominiums, townhomes, and co-ops.
Jobs are the most important economic statistic for homebuilders. They need to see an increase in job growth to get some activity from the first-time homebuyer.
Last week’s increase in mortgage rates was strange, given that bonds didn’t move that much. This week, mortgage rates gave back last week’s increase.
There was no discussion of the “speed limit” issue in the July FOMC minutes. This is generally a “cyclical versus structural unemployment” issue.
According to the Bloomberg Consumer Comfort Index, perceptions of the economy are highly negative, at 29% positive versus 71% negative.
Increases in industrial production generally signal increases in employment. Things are finally starting to improve as construction jobs rebound and more companies start to move toward onshore production.
While the Great Recession was caused by excess debt, it’s still important to watch business inventories. It’s essential to focus on the inventory-to-sales ratio because spikes in this ratio forecast slowdowns.
We’re seeing energy-intensive industries relocate back to the US. This will do wonders for the employment picture. It will provide good-paying middle-class jobs—which this country desperately needs.
The “Empire State Manufacturing Survey” is put out by the New York Fed. The report shows that the economy is kicking into second gear. Firms are generally optimistic about the future.
Four years into the economic recovery, housing starts are still about where they bottomed in prior recessions. To get the economy out of first gear, we need to start building more houses, as homebuilding employs a lot of people.
In the latest survey, consumers expect home prices to increase by 2.2% over the next 12 months. Homebuilders need people to believe real estate is a sensible investment and that home price appreciation will continue.
Consumers are still relatively bullish on housing but are beginning to expect the torrid home price appreciation of the last year to end soon.
Over the past several months, mortgage rates and the ten-year bond yield stopped correlating. Last week, this trend broke as the two variables lined up once again. We’ll have to wait to see if this trend continues.
We’re coming up on earnings season for the builders. So far, most have reported good earnings. While housing is rebounding, it’s important to remember that these numbers are coming from an extremely depressed base.