With sales of new and existing homes increasing and mortgage rates moderating, the housing market is ready to stabilize and begin recovering from the subprime meltdown. That can’t happen without prices stabilizing too, as continuing deflation gives potential homebuyers the incentive to wait on the sidelines. So markets will be paying close attention this morning to the S&P Case-Shiller index, which is expected to show the annual decline in prices moderating.
Economists at BMO Capital Markets say there is little doubt that the housing market has already hit bottom and is now recovering. “In the past three months (and in 4 of the past 5 ending June), both new and existing home sales increased,” they said before the Case-Shiller release. “Unsold homes on the market still remain relatively high, particularly on the resale front owing to foreclosures, but the inventory overhang is not as huge as it was before, and the associated downward pressure on prices is abating.”
Analysts expect the most closely-watched tracker of nationwide home prices to show prices in the 20 metropolitan areas falling for their 33rd month in June, but the annual pace of decline is expected to improve slightly to -17.9% from -18.1% in May, continuing the minor improvement seen since February.
“It’s easy to dismiss the idea of a sustained recovery in sales as a fantasy, but at least some elements of both the macro story and the specifics of the new home market support it,” said HFE chief US economist Ian Shepherdson. “The key point here is that homes are more affordable than they’ve ever been, provided you can get a mortgage as the posted rate.”
Then, at 10:00, the Conference Board measure of Consumer Confidence is expected to bump slightly to 50.0 in July, after a 49.3 reading in June. Many analysts expect sentiment to fall due to continued losses in the labor market, but two weeks of gains in the stock market, plus falling gas prices, have pushed the median forecast upwards.
Analysts at BMO are particularly optimistic. “Higher equities and lower gasoline prices in the month likely helped consumers regain some of the prior month’s dip in confidence,” they wrote in a client note. “Look for the index to climb several points to 52, still deep in recession territory but well above February’s all-time low of 25.3. Also look for less gloomy labour market prospects.”
At 1:00pm the Treasury Department will auction $42 billion 2 yr notes. Mortgage News Daily's MBS Commentary blog will cover the results and communicate any effects on mortgage rates.
In today’s Headlines:
Gov't Efforts to Reduce Foreclosures Failing: "An Obama administration effort to reduce home foreclosures by lowering the mortgage payments of struggling borrowers before they fall behind is failing to help as many people as expected,” reports the Wall Street Journal. “Among the problems: Some homeowners are being told they must be behind on their payments to receive help, which runs counter to the aim of the program. In other cases, delays are so long that borrowers who are current on their payments when they ask for a loan modification are delinquent by the time they receive one. There is also confusion about who qualifies. Administration officials have summoned executives of 25 mortgage-servicing companies to Washington on Tuesday to discuss efforts to help borrowers, both delinquent and at risk."
US$ Sinking: “The U.S. dollar index (DXY) tested a new low for the year (78.315) as investors and traders increased their bets that the global recession is over,” said TJ Marta in the Overnight Express. “The greenback underperformed all other major currencies. The AUD by far outperformed the others as RBA Governor Glenn Stevens opined that the current economic downturn might not turn out for Australia “to be one of the more serious ones of the post-War era, in contrast to the experiences of so many other countries”.