New home sales rebounded to a 343,000 unit, annualized rate in April after declining in March. That is still a small fraction of the more than 2 million units sold at the peak of the boom. Structural problems in both the supply of credit and the capacity to build new homes will constrain the rebound for some time to come.
Indeed, preliminary data for May is not as encouraging for home sales in general, as mortgage purchase applications dropped during the first two weeks of the month. Refinancing remained strong, however, suggesting that the government’s
Home Affordable Refinance Program (HARP) may finally be working. Anecdotal reports suggest that banks have been more proactive in helping at-risk borrowers who are still current on their mortgages to refinance at a lower, more manageable rate. This will hopefully put a damper on foreclosures in the latter part of the year, as long as employment remains stable.
Bottom Line: The housing market is showing signs of firming, but gains are likely to remain uneven. This is despite a clear improvement in the underlying fundamentals and a rise in the pent-up demand for housing. Persistently tight mortgage market conditions and capacity constraints in new home construction, in particular, are going to keep more people renting than buying for some time to come.