Commentary: Housing Recovery? Hold the Champagne

Recent reports from the ""National Association of Realtors"":http://dsnews.comarticles/existing-home-sales-prices-jump-to-multi-year-highs-2013-05-22 and the ""Census Bureau/HUD"":http://dsnews.comarticles/new-home-price-hits-record-high-in-april-2013-05-23 showed sharp increases in unit sales and prices, as well as increases in the inventory of homes for sale for April.

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Has housing turned the corner? Look again.

Sales up, prices up, what's wrong with this picture?

The last time both prices and sales of new homes increased in the same month was last September. In October, both sales and prices dropped, but in November, January, and March, sales increased when prices dropped and in December and February when prices rose, sales fell.

The pattern, with a couple of exceptions, shows up as well in a review of existing-home sales: sales up and prices down in October and January, while sales fell when prices rose in December and March. In all of 2012, sales and prices moved in opposite directions in seven of the 12 months.

[The reports on existing and new home sales are, of course, not strictly comparable. The Census and HUD new home sales report tracks sales contracts, while the NAR reports on completed transactions-closings, which means Census/HUD data are more affected by current economic conditions while NAR reflects economic conditions two months earlier than the month covered by the report. As is often the case with reports that may be dissimilar, that they are consistently developed from month-to-month legitimizes comparisons.]

What of course is missing from the two data sets is any indication of demand, though there are other sources which suggest skepticism about a near-term housing rebound might not be misplaced.

The Federal Reserve, in its quarterly Senior Loan Officers Opinion Survey, asks lenders to characterize demand for residential mortgage loans as ""substantially stronger,"" ""moderately stronger,"" ""moderately weaker,"" ""somewhat weaker"" or ""about the same"" as the previous quarter. The National Association of Home Builders, in its monthly Housing Market Index (also described as a builder confidence index), tracks buyer traffic as one of its components. The Mortgage Bankers Association tracks mortgage applications weekly and summarizes the data quarterly.

According to the most recent Federal Reserve ""survey"":http://dsnews.comarticles/mortgage-credit-eases-as-demand-increase-in-2q-2013-05-06, a net 39.1 percent of responding banks said demand for traditional mortgage loans had improved, up from 29.2 in the previous quarter. Good news? Wait. At the same time, a greater percentage of responding banks said they were easing credit terms for traditional residential mortgages in the first quarter than in the fourth quarter a year ago. The combination of improved demand and easier credit terms beg the question: is demand up because banks are making it easier to get loans or are banks easing standards to accommodate stronger demand?

While buyer traffic, according to the NAHB survey, improved in May, the same survey shows it was slightly weaker in the first quarter than in the fourth quarter of 2012, and for the first five months of this year, it was essentially flat to the last five months of 2012.

The MBA estimates mortgage originations grew slightly in the first quarter after falling for two straight quarters, but first quarter activity was weaker than either the second or third quarters a year ago.

Probably the better read of the housing market--specifically the single family housing market--would be the activity of builders.

While in the first quarter housing starts improved, multifamily starts accounted for the majority of the increase, a signal that builders see demand growing not for single family homes, but for multifamily housing.

That prices are going up is a reflection of the tighter inventories. To an extent, that may be circular: the owner of an existing single-family home withholds a listing because prices are too low, which sends prices up, discouraging buyers.

For new homes, builders shift their efforts to multifamily, limiting the supply of new homes to raise prices but also discouraging buyers.

According to the most recent Census/HUD report, high end homes--priced above $400,000--drove the April increase in the median and average price of a new home with the median price, hitting an all-time record. That market shift--homes prices at $400,000 or more--represented 24 percent of April sales, up from 13 percent in March, would mean builders change their focus from lower end homes attractive to first-time homebuyers, sacrificing future sales.

A housing recovery is critical to a recovery of the economy as a whole, but wishing won't necessarily make it so.

_Hear Mark Lieberman on P.O.T.U.S. Radio (SiriusXM 124) on Friday at 6:20 am eastern time._

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