If any more evidence is needed that home sales are recovering we have it in NAR’s latest pending home sales data, for November, which were released last week. The index is up for the third straight month and it’s reached its highest level, 104.6, in more than two years, when households were rushing to buy before the home buyer tax credit expired.
NAR Chief Economist Lawrence Yun says the strengthening housing market is based entirely on improving fundamentals: continuing economic growth (albeit at a moderate pace), improving jobs picture (again, no where near where we’d like it to be, but heading in the right direction), improving consumer confidence as home prices strengthen, and growth in the number of new households.
What’s encouraging about the latest data is the improvement is happening despite continuing difficulties households are having obtaining financing. Think of how much better the market would be if lenders would return to the underwriting standards they had in place before the boom, when the standards were reasonable and safe rather than overly restrictive as they are now.
The big concern today is what the federal government will do. In the short term, you have the fiscal cliff looming in just another day. If lawmakers can’t forge a budget agreement, hundreds of billions of dollars in federal spending cuts and tax hikes will take effect, which Yun says could send the economy into recession because it would take a 4-percent bite out of the economy.
In the longer-term, we have some unresolved regulatory issues coming up, including the qualified mortgage (QM) and qualified residential mortgage (QRM) rules, as well as the international banking protocol known as Basel III, which could impose new capital requirements on banks. These three matters taken together are casting quite a pall over lenders. They’re concerned they’ll have to hold back more capital and meet certain minimum underwriting requirements because of these rules (none of which has been enacted yet, but they could be enacted soon). So, how the federal government actually comes out on these rules could have a big impact on the availability and affordability of mortgage financing.
As of right now, though, the market is improving on its own, thanks to the slowly improving economy. Now we just have to see if there will be any shocks in the days and months ahead.