In the most alarmed quarters, the black comedy of missing mortgage documents and robo-signers appears poised to bring home sales to a halt. And at the least, an extension of already long foreclosure timelines is bound to slow the flow of distressed properties.
Before the latest flare-up, the Mortgage Bankers Association's applications indexes were signaling that the pace of transactions might be finding a bottom.
The seasonally adjusted purchase index had plummeted 42% from the end of April to the beginning of June, corresponding to a drop in sales of new and existing homes about two months later — by more than 25% from June to an annual, seasonally adjusted rate of 4.1 million in July.
In the accompanying chart, the monthly average of the purchase index has been moved two months into the future so that, for instance, June applications activity is shown alongside the August transactions it probably foreshadowed.
The relationship between applications and sales has become looser than it was earlier in the decade, with recent, sharper spikes in sales than applications — perhaps attributable to large numbers of all-cash deals. (The proportion of existing homes bought with cash has oscillated from 12% to 30% since October 2008, when the National Association of Realtors began tracking the data monthly.) But an apparent directional correspondence persists.
Much of the recent volatility in home sales is attributable to deadlines for federal tax credits that impelled buyers and sellers to move faster than they otherwise would have.
After being whipsawed to a nadir in July, home sales did recover by 7%, to a 4.4 million rate in August, but sales remained well below the pace that had prevailed during the depths of the recession, whether because a lot of tax-credit payback remains to be absorbed or because of a deeper malaise.
Nevertheless, despite week-to-week gyrations, the purchase index had been trending up for close to three months. Now, yet another shock to the system appears likely to unsettle the bottom.
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