Monday, May 24, 2010

Real Estate Outlook: Mixed Messages

The housing market may be reverting back to its old pattern of sending mixed messages at least that's the way it looks from the latest numbers.

On the one hand, last week was outstanding for home builders.

Nationwide new home starts, which are a key indicator not only of where real estate is headed but of builder confidence levels, increased by 10.2 percent to hit their highest total since August of 2008.

On a regional basis, starts were even more impressive in some areas. The Northeast saw a huge jump of 24 percent for the month. The Midwestern states were up 17 percent, the South by 7 percent.

Only the Western region saw starts fall -- by 13 percent.

Some analysts attributed the sudden burst in building activity to rising sales of new homes by purchasers seeking to qualify for federal tax credits.

Those sales burned off unsold inventory, according to David Crowe, chief economist of the National Association of Home Builders, and allowed builders to get back to what they do best -- building more houses.

But there was a complication here: Permits for new single family homes dropped sharply in April, by nearly 11 percent.

How do you figure that? Well, probably the best explanation is that builders are playing it safe on pulling new permits for future starts. With unemployment still close to 10 percent, builders aren't totally sure about the strength and duration of the national economic recovery. They don't want to be stuck with excess production next year.

Meanwhile, there were some other sobering numbers indicating that the housing rebound is not going to simply go straight up, but is likely to move in fits and starts.

New applications for mortgages to purchase homes plunged by 27 percent last week, according to the Mortgage Bankers Association.

Part of that can be explained by the fact that purchase applications ran high in the weeks leading up to the April 30th contract deadline for tax credit home purchases.

There were predictions that loan applications might take a tumble when the credits disappeared - and that's what we're seeing.

And finally, just to add to the mixed message theme, new national research from real estate data company CoreLogic found that home prices are rising in most markets, after nearly 3 years of negatives.

Nationwide, according to the CoreLogic Home Price Index, prices rose in the latest month by nearly two percent on average over year-earlier levels.

Prices in a handful of local markets, San Jose, Buffalo, Denver and San Diego among others, gained by more than double that rate.

Source: Kenneth R. Harney: May 24, 2010

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