Are Home Sales on Rebound?

Home sales seem to be rebounding according to the MBA's Purchase Index

Home sales appear to be rebounding, if only slightly, but the overall timeframe of a genuine recovery is in question. The Mortgage Bankers Association Purchase Index inched up 1.1 percent for the week ending November 26 to its highest level since the beginning of May, which is when the second home buyer tax credit ended.

The four week moving average for the Purchase Index is up 3.8 percent, which also seems to indicate more buyers are on the market for a home. Does this homes-sales number mean we can look forward to a recovery in the housing market?

We'll have a better idea of the state of affairs for pending homes sales later this morning, when the National Association of Realtors releases its monthly report for November. "The relationship between purchase applications and home sales hasn't tracked well in the past couple of years, possibly due to a notable rise in all-cash transactions," Walter Molony, a spokesman for the NAR explained. He added, "The four-week moving average is less volatile, and it does hint at a rise in sales."

Celia Chen, Senior Director of Moody's, expects a minor improvement in home sales: "The index is still pretty low. On a seasonally adjusted basis, I wouldn't be surprised if sales picked up in November, but the number of sales will still be weak. It will be mid-2011 before the pace picks up more strongly."

Mike Fratantoni, vice president of research and economics for the Mortgage Bankers Association, said the Purchase Index "typically leads home sales numbers by four to six weeks" because the existing sales numbers are based on closings. He add that the MBA is "increasingly confident" that the Purchase Index is a "good predictor" of what will happen to home sales.

So while all three believe that we'll see an uptick in home sales when the November numbers are released, they all believe we're still a ways from a major jump in home sales.

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The refinance share of the market still remains rather high at 74.9 percent of total applications, which is down slightly from 78.6 percent. Fratantoni said that refinance tends to be "feast or famine" at any time, of course, depending on mortgage interest rates. But in a more normal market its share is closer to 25 to 30 percent, so he expects refinances to continue to trend down through 2011 until they reach nearer to 30 percent by the end of next year.

What will happen to interest rates? Fratantoni expects them to slowly rise to 5.1 percent by the end of 2011. He doesn't expect to "see rates spiking up," which is good for those homebuyers still sitting on the fence waiting for a sign of economic improvement.

Lita Epstein has written more than 25 books including "The 250 Questions Everyone Should Ask About Buying Foreclosures" and "The Complete Idiot's Guide to Improving Your Credit Score."

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