Housing Market Survives June While Rates Find Some Stability

The recent volatility of bond markets has created a lot of questions about whether the housing recovery will be affected. Now that the data has started to come in, it appears that the housing market survived June while rates are finding some stability.

Existing home sales fell 1.2% during June, but were still 15.2% higher than a year ago, according to the National Association of Realtors. Total inventory by the end of June rose 1.9% to a 5.2 month supply. This is still 7.6% below a year ago when there was a 6.4 month supply available. It is considered a healthy housing market when there is a 6 month supply of homes for sale. Low inventory continues to contribute to higher home prices which were up 13.5% above last year at the same time. This represents 16 straight months of year over year price increases.

Higher home prices have helped many homeowners rise above underwater status. According to the NAR report, 53% were planning to purchase another home while 22% plan to rent. The remaining 25% continue to be unsure of their plans. Homeowners who are considered underwater still may not have gained backed enough equity to sell their homes. Further, there are still homeowners who may, in fact, be underwater and eligible for the Home Affordable Refinance Program (HARP) which is available until the end of 2015. HARP refinance loans have helped many underwater homeowners move to a better mortgage while gaining back equity at a faster pace.

First time home buyers represented 29% of home purchase during June, up 1% from May, but down from 32% from the same time last year. While this number should be closer to 40%, changes in credit guidelines continues to keep these numbers down, according to Lawrence Yun, chief economist for NAR. In addition, many first time home buyers, who would normally use one of the many types of FHA loans for financing, may be finding this more difficult since FHA made their credit guidelines stricter in recent months.

Builder Confidence has risen to 57 in July, according to the National Association of Builders, even though HUD and the US Census Bureau reported that housing starts for June fell 9.9%. Building permits dropped 7.5% which was mostly in the multifamily sector while the single family sector rose 0.6%, the best seen in five years and a reason for builders to be happy.

Mortgage rates have become somewhat more stable since last week's statements made by Federal Reserve Chairman, Ben Bernanke. Even with slight increases, rates are still at 60 year lows. However, the news of rising rates is having an impact on mortgage applications. The Mortgage Bankers Association reported that applications dropped slightly by 1.2% during the week ending July 19th. While purchase volume was down 2%, refinance activity dropped only 1%, but is still at the lowest point since July 2011. HARP refinance activity fell by 12% while conventional mortgage refinance applications rose 2%.

An update on housing wouldn't be complete without reporting on investor activity. According to NAR, home sales with cash fell 1% to 31% of transactions in June and up from 29% from a year ago. Individual investors represented only 17% which means that corporate investors are still active.

All in all, it appears that the housing market has survived the first threat of rising mortgage rates, something that is expected at some point in the future. Yes, total refinances have dropped, but that is something that usually happens with the slightest change in rates. Some things are up and some are down, however, nothing moved so drastically as to say that there is a major upset at this time. After all, rates may have gone up in June, but June is also a month of seasonal activity, such as end of school, graduations, vacations and weddings, leaving less time to go house hunting or think about refinancing. At this point, we will just have to wait and see what happens.

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