Is Minor Housing Disappointment a Major Problem?
12/31/2013 9:30 am EST
Yesterday, there was some minor disappointment in the pending home sales numbers for November, writes MoneyShow's Jim Jubak, also of Jubak's Picks, but he questions whether or not it merits much attention.
If yields on benchmark ten-year US Treasuries hadn't climbed over 3% on Friday, would yesterday's tiny disappointment in pending home sales for November be getting any attention at all?
I don't think so. I think this is one of those cases where nervousness about the possibility that higher interest rates could lead to higher mortgage rates and slow the rate of home sales, lending a data point more weight than it deserves.
In yesterday's numbers, from the National Association of Realtors, pending home sales increased by 0.2% in November. That was the first increase in six months and comes after revised figures for October showed pending sales fell by 1.2%. (The pending home sales numbers track contracts to purchase previously owned houses, that haven't yet resulted in closed sales. Existing home sales numbers are based on contracts that have closed.)
Even though the November increase was a positive sign after six months of declines, it was below the median projection of a 1% increase, among economists surveyed by Bloomberg. Projections in that survey ranged from a drop of 1% to an increase of 5%.
The Federal Reserve's December 18 decision to begin tapering off its monthly purchases of $85 billion in Treasuries and mortgage-backed securities in January, is the reason that everybody cares about every bit of housing market data. The yield on the ten-year Treasury stood at 2.8% when the Fed met, and while the climb to 3% has made the markets nervous, no one is quite sure how much of a move upward in rates, translates into how much of a slowdown in the economy. The housing sector is extremely sensitive to changes in interest rates and everybody is looking to home sales as a leading indicator to see if the Fed's decision will slow the economy. The average interest rate on a 30-year fixed mortgage has climbed to 4.48% in the week ended on December 26, up from 3.35% in December 2012. But the current mortgage rate is still slightly lower than the two-year high of 4.58% reached in August 2013.
A good rule to remember about the financial markets, and economic data, is that the market uncertainty makes all data seem more important—no matter its actual quality or predictive value.
Full disclosure: I don't own shares of any of the companies mentioned in this post in my personal portfolio. When in 2010 I started the mutual fund I manage, Jubak Global Equity Fund, I liquidated all my individual stock holdings and put the money into the fund. The fund does not own positions in any stock mentioned in this post. For a full list of the stocks in the fund as of the end of June see the fund's portfolio here.