Economic Summary

Economic Summary July 2, 2010, A. Langes, Richmond Hill, GA

Weekly Economic Summaries are submitted courtesy of Richmond Hill, GA mortgage broker, Aaron Langes. Aaron is a Loan Officer with Bank of America, a preferred partner of Keller Williams Realty, Richmond Hill. Please note that this is Aaron’s (912.678.6063) area of expertise and I provide the information as a resource – in other words, he can answer your questions better than I can

OVERVIEW ~ June 21 through June 25 ~ The Dow Jones Industrial Average slid gradually from a Monday opening of 10450.64 to a Friday close of 10143.81. Throughout the week the market index seemed unable to hold on to intraday gains, ending lower each day. The 10-year Treasury note fell steadily as well, beginning the week at 3.225% and ending it at 3.110%. The Treasury note and the DJIA were both falling in the face of continuing concerns about the strength of the economy. Particularly difficult for the markets to shake were the unsettling indicators reported from the real estate sector.

FOCUS ~ Real estate sales have apparently continued to decline at a pace unanticipated by most market analysts. Analysts assumed that sales volumes, along with mortgage application volumes, would fall after the federal homebuyer tax credits expired. But this week there were reports of a 2.2% decline for existing home sales and a sizeable drop of 32.7% for new home sales in May.

But let’s consider the context within which these statistics appear. Remember, existing and especially new home sales figures are volatile and they are often revised in the weeks after they are published. Also, let’s look at an index that suggests how many home sales should soon be closing.

The Pending Home Sales Index, compiled by the National Association of RealtorsÒ, tells us how many contracts for the purchase of homes were signed in a given month. In April, the number of contracts rose by 6%, the third monthly rise in a row. That would suggest stronger, not weaker, volumes of sales closing in May and June.

Meanwhile, the Mortgage Bankers Association® Index of Mortgage Applications has been suggesting that the decline in purchase money applications (that followed the expiration of the tax credit programs) was ending. This should mean that sales are once again picking up.

The existing home sales data include completed sales only, unlike the Pending Home Sales Index. If these sales were affirming the trends in the Pending Home Sales Index and the Mortgage Applications Index, they would be rising. Why the disparity between these sets of data? Perhaps the main reason is that it is taking longer than expected to close the sales brought on by the end of the tax credit programs.

This may not completely explain the huge drop in new home sales, but, as we mentioned earlier, new home sales data are particularly volatile. We need another month of data to make more sense of the 32.7% sales drop and resolve the differences between these real estate indicators.