SoCal Mortgage Blog

Although the groundhog spotted his shadow, there's no early spring in sight for the U.S. housing market.

In fact, the primary selling season, which traditionally kicks off on Super Bowl Sunday, is off to a sluggish start. The index of weekly purchase applications from the Mortgage Bankers Association is down 18% from a year ago. And this month's home-builder sentiment survey, considered a leading gauge of activity, remained at recessionary levels.

Data this week aren't likely to inspire much more confidence. New-home sales are expected to be down 14% in January from a year earlier. Purchases of existing homes are seen up 4%, in part because of continued foreclosure sales. Tuesday, the Standard & Poor's/Case-Shiller index is expected to show home prices posted a 2% year-to-year drop in December, more than November's 1.6% decline.

The weakness partly may reflect unusually bad winter weather. Additionally, prices and activity a year ago temporarily were juiced by the first-time home-buyer tax credit. Still, despite improvement in other parts of the economy, housing is barely managing to thaw.

It doesn't help that the somewhat brighter outlook for economic growth is lifting interest rates. Average 30-year, fixed-rate mortgages jumped above 5% this month after hitting a low of 4.17% in November, according to Freddie Mac. Already, that has choked off the refinancing wave. Now, it risks denting affordability, which, along with still-tight lending standards, continues to push entry-level buyers into rentals, notes Guggenheim Securities home-builder analyst Jay McCanless.

Indeed, the housing market's only real bright spots are largely in apartments and farmland. Single-family housing remains plagued by oversupply and weak demand. The shadow inventory of homes in delinquency or foreclosure has fallen from its 8.1 million peak, according to the Mortgage Bankers Association, but remained at an elevated 6.7 million in the fourth quarter. RBC Capital Markets reckons prices still need to fall another 5% to 10% to better align inventory with demand.

Price declines are fine, so long as they spur sales rather than scare off would-be buyers. Even if prices stay weak or slip further, sales at least generate broader economic activity and chip away at the inventory overhang.

What the housing market, and the economy, can't afford right now is a sleepy spring.

By: Kelly Evans