This week's release of the New Residential Construction and Existing Home Sales data will give us insight into what the construction and mortgage industries are betting on for the short-term future of the housing market.
I anticipate continued weak New Home Construction data and a modestly robust Existing Home Sales report. Existing home sales are benefiting from a 25 percent year-over-year decline in inventory, robust demand from cash-flow minded investors - for properties less than or equal to $200,000 in particular - and modest interest rate volatility that pushed prospective buyers off the fence. New Home Construction, however, is bouncing around the bottom of the chart at nearly 50-year lows, and off 80 percent from its 2005 peak. Persistently weak homebuilder confidence foreshadows another likely weak New Home Construction report.
This week, on September 19, the Census Bureau will release its New Residential Construction data, and the National Association of Realtors will release the Existing Home Sales Report.
The media, government and economists appear to perceive that a housing recovery is underway. The Obama Administration's August Housing Scorecard reported that "data continues to show signs that the housing market is strengthening." Mortgage interest rates, although they saw a few weeks of increases, remain at historically low levels and home prices continue to rise. The S&P/Case-Shiller Home Price Index reported that home prices rose for the second consecutive month in August; all 20 cities surveyed saw increases in the media home price at a minimum of one percent.
But are the predictions well founded and does the economic environment necessitate momentum in the housing market? There appears to be a disconnect between such predictions and consumers' desire to buy new or existing homes.
The recent announcement from the Federal Reserve supports this assertion. The Federal Open Markets Committee announced last week plans to purchase $40 billion in mortgage-backed securities each month to stimulate the housing market and economy. Performance of construction and home sales data this summer also shows that consumers may lack the enthusiasm of the media and government. Both privately owned housing starts and single-family housing starts were down in July compared to June. And existing home sales only increased by 2.3 percent from June to July.