New Housing Data Sending Mixed Signals
Is the party over for the housing sector? Market indices for the month of July sent mixed messages, and economists, concerned about the impact of oil prices and interest rates on housing have been paying attention. July single family home sales were at a record high, according to the Associated Press, but the median price for a new home fell last month, according to Commerce Department figures released on Wednesday. Durable goods orders, a possible indicator of future housing starts, dropped by 4.9 percent, the biggest decline in 18 months.
Clifford Waldman, economist at the Manufacturers Alliance/MAPI told the AP that the drop in durable goods orders “suggests that escalating oil prices . . . might be creating skittishness on the part of business decision makers.”
Condo sales, the hottest area of the real estate market, dropped 5 percent in July, according to a report in Market Watch. Despite the decline, July showed the third-highest sales rate ever. David Lereah, chief economist for the National Association of Realtors, which released the condo data, told MarketWatch, “We may be seeing some of the air come out of the condo balloon.” Inventories of unsold condos have risen by 67 percent over the past year, but Lereah says that they are not yet high enough to cool prices.
Fears of higher interest rates and worries about the housing market were the likely causes of sharp declines in stock prices since August 2nd of mortgage lending companies and mortgage-backed REITs, according to a report in USAToday. REITS getting hit the hardest specialize in borrowers with dinged credit, the newspaper reported.
The market for subprime mortgage loans, which carry a higher than prime interest rate to compensate for increased credit risk, has soared in the last 12 months, Mark Zandi, chief economist at Economy,com told USA Today. Zandi said that subprime mortgages account for about a sixth of all mortgage debt outstanding, or $1.5 trillion. Rising interest rates could lead to delinquencies with consequences to the lenders’ profits.
Mortgage-backed REITS might have to cut their dividends, if profits fall. Worry about the future of the housing market is beginning to surface in other parts of the U.S. equity market, according to a column in Bloomberg.com by Mark Gilbert. The Standard & Poor’s 500 index of homebuilding shares has declined by almost 15 percent in the past month. The index has had a gain of 50 percent for the last twelve months.