This week’s housing news revealed the latest data on two leading indicators of home sales, both of which point to additional retrenchment in existing home sales in the near-term.
Pending home sales dropped in August, marking the second decline over the past three months. Combined with the second consecutive drop in average monthly purchase applications in August, existing home sales will likely soften further after posting a 4.8 percent drop in August from an expansion-high pace in July.
Our forecast that 2015 total home sales will be the strongest since 2007 remains on target, however. While purchase applications dropped during the final week of September, average applications for the entire month rose for the first time in three months and are about 23 percent and 8 percent higher than during the same period in 2014 and 2013, respectively. Low mortgage rates will remain supportive for the housing market.
The Freddie Mac survey’s average yield on 30-year fixed-rate mortgages ticked down to 3.85 percent, staying below 4.0 percent for the tenth consecutive week. Home price trends continue to be strong.
The S&P/Case-Shiller house price index showed solid year-over-year appreciation in July, albeit at a more moderate pace than other main measures of home prices reported earlier. Strong housing demand during the summer season, lean inventories, and fewer distressed sales helped boost home prices.
The August construction spending report suggests that real residential investment will likely post solid growth this quarter, though not as strong as the 9.4 percent annualized pace recorded for the second quarter.
The National Association of REALTORS® Pending Home Sales Index, which records contract signings of existing homes and typically leads closings by one to two months, dropped 1.4 percent to 109.4 in August, the lowest level since March. Pending sales are 6.1 percent above the level a year ago, the smallest year-over-year gain since November 2014. Pending sales dropped in the Northeast, Midwest and South, with the largest decline occurring in the Northeast. The West was the only region that saw a rise in pending sales.
Private residential construction spending advanced 1.3 percent in August from the prior month, according to the Census Bureau. Spending on new single-family homes rose 0.7 percent, compared with a 4.8 percent jump for multifamily spending. Data for the prior two months were revised lower. Spending for home improvement increased 0.7 percent. From a year ago, new single-family and multifamily construction spending increased 14.0 percent and 24.7 percent, respectively.
The S&P/Case-Shiller 20-city Composite Home Price Index (not seasonally adjusted) rose 0.6 percent in July. From a year ago, the index increased 5.0 percent, a slight pickup from 4.9 percent pace of the prior month. Of the 20 cities, San Francisco, Denver, and Dallas posted the largest year-over-year increases, while New York City, Chicago, and Washington, D.C. saw the smallest gains. The pace of increase for the national index also firmed slightly in July, posting a 4.7 percent year-over-year gain, compared with a 4.5 percent gain in June. Other measures of home prices, including the FHFA purchase-only index and the CoreLogic index, also showed a pickup in year-over-year increases in July.
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