No Mortgage For Homes

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 |  Includes: DRN, DRV, FRI, FTY, ICF, ITB, IYR, KBWY, KME, PKB, PSR, REK, RWR, SCHH, SRS, URE, VNQ, WREI, XHB
by: Alhambra Investment Partners

By Jeffrey P. Snider

Following up on the previous post about the state of mortgage and finance post-tightening, we are beginning to see the first vestiges of a full reversal in housing. Construction activity has leveled off, and may even be declining depending on the individual measure. There has been hope that the collapse in mortgage demand would be “contained” in refis, but, as I noted earlier, purchase activity has been threatened as well.

Following that, we can only estimate via secondary indications about cash investments into real estate itself. If the National Association of Realtors' indices are close, then it appears that declines are gaining in momentum. Existing home sales in December were above November (on a seasonally adjusted basis) but were down 0.6% Y/Y. The annual home price appreciation in 2013 was estimated to be 11.5% – the “best” year in the last eight (effect meet cause).

Those figures are for closings, however, meaning that they are lagging current conditions. Since it takes a few months from purchase contract to close, these estimates are not yet conveying the full fury of dollar and finance tightening. That comes to us from the measure of “pending” home sales, where a contract to purchase real estate has been initiated but not closed.

The NAR estimates that pending sales fell 8.7% M/M in December and 8.8% Y/Y to the lowest level since October 2011. That would be right around the time the mini-bubble got its start. The declines were broad-based, with every region showing significant deterioration.

As expected, the weather was blamed, but to its credit the NAR actually acknowledged the role of rising prices. Put that together with the state of mortgage finance and it is hard to see both economic improvement and expectations for a housing re-rebound in 2014. But taper is not tightening.