This Week in Real Estate 20July2011: Not Good

Econintersect: There are signs that the real estate market is weakening. Existing home sales headlines:

Total existing-home sales, which are completed transactions that include single-family, townhomes, condominiums and co-ops, declined 0.8 percent to a seasonally adjusted annual rate of 4.77 million in June from 4.81 million in May, and remain 8.8 percent below the 5.23 million unit level in June 2010, which was the scheduled closing deadline for the home buyer tax credit.

Econintersect is currently reviewing the raw data and will publish its findings shortly.

Altos Research this past week has suggested there is a correlation between the stock market movements, IPO’s and home prices in certain markets.

If we choose the S&P 500 as the benchmark, the sensitivity number will be a sort of real estate beta. Since real estate is far less liquid than most stocks, I regressed quarterly changes in our Altos Research median ask price against the previous quarter’s change in the S&P 500. Historically speaking, those real estate markets with a high beta have gotten a boost in prices after a good quarter in the stock market. Those markets with a low, negative beta are not “immune” to the stock market, but tend to be depressed by a stock market rally.

The Mortgage Bankers Association data for week ending 15July2011 shows loan refinance applications increased 23.1% from the previous week.

“Ongoing turmoil in the financial markets primarily due to the sovereign debt crisis in Europe has brought mortgage rates back to their lowest levels of the year,” said Michael Fratantoni, MBA’s Vice President of Research and Economics. “Refinance applications have surged in response and the refinance index is at its second highest level of the year. One factor that may be contributing to this increase is that borrowers potentially impacted by impending decreases in the conforming loan limit may be opting to lock in fixed-rate financing now.

The average contract interest rate for 30-year fixed-rate mortgages decreased to 4.54% from 4.55%, with points decreasing to 0.98 from 0.99 (including the origination fee) for 80 percent loan-to-value (LTV) ratio loans. Hat tip to Calculated Risk for the following graphic putting this historical index into perspective.

Source: Altos Research, MBA, Calculated Risk