Housing Data Is Mixed, But Expect A Strong Spring Season

Housing Data - Strong Market Index

We will review the 3 housing market reports from this week. Two were great and one wasn’t. Good news is February is looking good because of the decline in mortgage rates. Bad news is the January existing home sales report, which measures the majority of home sales, was weak. 

First, let’s look at the February housing market index. The HMI increased from 58 to 62 which beat the consensus for 59 and the high end of the consensus range which was 60.

As you can see from the chart below, the index is up from December where it bottomed at 56. The 30-year mortgage rate peaked at 4.94% in November and has since fallen to 4.35% as of February 21st. 

It took a few weeks for the decline in interest rates to boost mortgage demand as it takes 50 days to close on a house. It’s a big decision to buy a house, so the move in rates needs to be substantial to increase demand. 

December was also hurt by the government shutdown and stock market crash, which brought uncertainty to home buyers.

(Click on image to enlarge)

Present sales index was up 4 points to 67 and the 6-month forward sales index was up 5 points to 68. Traffic index was up 4 points to 48, which means it’s in contraction territory. I expect this spring to have a strong demand for housing because real wage growth is strong and the labor market is nearly full. 

Plus, the stock market has rebounded and the government shutdown is over. 

Housing Data - Moderation of home price growth and the interest rate decline make housing much more affordable.

The composite score in the West was the strongest as it increased to 67. South, which is the biggest existing housing market, was at 66. These are interesting readings because their existing home sales were very weak in January. Midwest’s index increased to 55. Northeast’s index was down to 45. 

That means it was the only region that contracted. Northeast has expensive housing which is why it was especially hurt by the elimination of the state and local tax deduction cap of $10,000 for property taxes. Midwest has the most affordable housing.

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