US Housing Data This Week- Second Month of Gains Expected

The US reports existing and new home sales this week. Despite the backing up of mortgage rates in since early Q2, the housing market continues to stabilize and officials, including Fed officials who meet this week, are likely to find comfort in the data.

Existing home sales for May will be reported tomorrow. The consensus expects a gain on part with the 2.9% rise in April that would bring the annual pace to 4.82 mln units, the highest since last Oct. Existing home sales appear to have bottomed in Jan at a 4.49 mln unit pace. Existing home sales have not risen for two consecutive months since Aug-Sept 2005.

New home sales will be reported on Wed and are expected to have risen more than 2% in May after a meager 0.3% increase in April. It would be the second consecutive monthly rise for this time series and the first back-to-back advance since March-April 2006. New homes sales appear to have bottomed in Jan at a 329k pace. A rise in line with consensus forecasts would still not see the pace return to even Feb levels, illustrating how dramatic of a decline was experienced.

There are a few considerations behind the stabilization of the housing market--including falling prices and lower mortgage rates. Most measures of housing affordability have improved. The Federal Housing Finance Agency will report house prices tomorrow for the month of April. By its measure prices rose in Jan and Feb, but the decline in March nearly offset both gains (the first since last Feb and the first back-to-back increase since March-April 07). The consensus calls for a 0.3% decline. The more closely followed S&P/CaseShiller Home Price Index will be released next week for the month of April. The pace of price decline has slowed, but the 3-month moving average in March represented new cyclical lows (for the 20-metropolitan markets).

Although mortgage rates have risen in recent weeks, they remain low from a historical point of view. Still, with unemployment rising and foreclosures increasing, it seems premature to expect housing to lead a US recovery.