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Takeaway: PHS cooled off in June, but only modestly. Whereas 1Q & 2Q could be fairly characterized as "Great", 3Q data thus far remains merely "Good".

Our Hedgeye Housing Compendium table (below) aspires to present the state of the housing market in a visually-friendly format that takes about 30 seconds to consume.

PHS | Dog Days - Compendium 072915

Today's Focus: June Pending Home Sales & MBA Mortgage Applications

It’s 98O & humid in CT and the dog days of late-July and the months of normal seasonal underperformance for the housing complex are upon us.  With purchase applications flat for two consecutive weeks, Pending Sales retreating modestly and rates meandering in breakout-breakdown limbo, the data too is panting to maintain its 1H pace of improvement.

Last week was in interesting one for housing.  June Existing Home sales expectedly re-coupled with the multi-month strength observed in Pending Sales to make a new post-crisis high while New Home Sales for June were a big miss.  In contextualizing that divergence, we posited that the key point to remember is that there’s a timing mismatch between the two series.  EHS reflects closings, so June EHS was actually reflecting contract signings from April/May, whereas NHS was reflecting contract signings in June. 

Thus, today’s PHS print for June – which represents June contract activity and the apples-to-apples compare for the latest NHS print – would be the arbiter of Trend, particularly with the Existing Market currently representing over 90% of total transaction activity.    

Pending Sales in June retreated from the 9-year highs recorded in May, dropping -1.8% sequentially (the largest drop in 18-months) and declining for the first-time in 6 months.  On a year-over-year basis, growth decelerated -200 bps sequentially to +8.2% YoY.  Notably, June represented the finale in positive comp dynamics, with base effects putting progressive pressure on reported growth through the balance of the year.   PHS weakness in June also augurs for sequential softness in EHS for July set for release on 8/20.

Short-term Considerations: A modest retreat off of decade high levels of activity is still “Good” on an absolute basis but the transition from Great to Good has been the defining characteristic of the 3Q data to date.  Indeed, with Purchase Applications flat for a second week and tracking -1.1% QoQ in 3Q, the large-scale reversal in housing fundamentals and subsequent re-inflation of investor optimism around housing we’ve seen over the last 2-3 qtrs is now in its twilight. 

Medium/Longer Term Bottom Line: This isn't to say that Housing's age of outperformance has ended. Our view remains that we are in a secular recovery and the complex will again show solid absolute upside/outperformance in the seasonally strong 4Q15/1Q16 period, especially with HPI re-acceleration and heading into an election year.

PHS | Dog Days - PHS vs EHS

PHS | Dog Days - PHS LT

PHS | Dog Days - PHS YoY  TTM

PHS | Dog Days - Purchase YoY Regional

PHS | Dog Days - PHS Comps

PHS | Dog Days - Purchase Index   YoY Qtrly

PHS | Dog Days - Purchase YoY

PHS | Dog Days - Purchase 2013v14v15

PHS | Dog Days - Purchase LT

PHS | Dog Days - 30Y FRM 

About Pending Home Sales:

The Pending Home Sales Index is a monthly data release from the National Association of Realtors (NAR) and is considered a leading indicator for housing activity in the US. It is a leading indicator for Existing Home Sales, not New Home Sales. A pending home sale reflects the signing of a contract, but not the closing of the transaction, which occurs 1-2 months later. The NAR uses data from the MLS and large brokers to calculate the Pending Home Sales index. An index value of 100 corresponds to the average level of activity during 2001.

Frequency:

The NAR Pending Home Sales index is released between the 25th and the 31st of each month and covers data from the prior month.

About MBA Mortgage Applications:

The Mortgage Bankers’ Association’s mortgage applications index covers more than 75% of mortgage applications originated through retail and consumer direct channels. It does not include loans delivered through wholesale broker and correspondent channels. The MBA mortgage purchase applications index is considered a leading indicator of single-family home sales and construction. Moreover, it is the only housing index that is released on a weekly basis. 

Frequency:

The MBA Purchase Apps index is released every Wednesday morning at 7 am EST.

Joshua Steiner, CFA

Christian B. Drake