While July existing home sales came in in line with expectations, the pace is still weak and the increase in inventory (to 9.6 months supply at the current sales pace) is especially unwelcome. This occurred before the recent credit crunch, so the concern is that difficulties in the mortgage market may further impact sales in August.
However, the following points should be kept in mind:
1) Rates for a 30-year fixed rate mortgage have been dropping, not rising, recently, to 6.5%, about where it was a year ago. Non-conforming loans (those over $417,000) are quoted higher, about 7.25%, just a bit higher than they were a year ago.
2) The Fed seems poised to cut rates, which should help reduce rates further.
3) Like oil, the impact of housing is not as great as it once was. Michael Darda at MKM Partners noted that: "residential real estate only represents 4.9% of the economy directly, down from a cycle peak of 6.3% in 2005. As such, even with an extended L-shaped recovery in housing, the impact of the drag from weak construction spending should continue to wane going forward."
4) House prices, while still decelerating, are not decelerating as much as they were earlier in the year, according to economist Robert Brusca.
There will be plenty of housing chatter this week. The Fed chairman will be speaking on "housing and monetary policy" on Friday, August 31 (at the Fed's annual Jackson Hole conference). S&P/Case Shiller home price indexes for June and Q2 will be released on Tuesday.
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