Home purchases continue downward spiral as purchase index declines 8.7%

The recent weakness in the housing market continues. MBA reports the adjusted Purchase Index decreased 8.7% from one week earlier. The Purchase Index is at its lowest level since October 2010. The unadjusted Purchase Index decreased 3.1% compared with the previous week and was 20.8% lower than the same week one year ago.

This is bad news especially because new home purchases would signify a strengthening housing market. We do not see that happening. While housing prices have been flat to slightly lower over the past year, recent weakness would suggest a more dramatic falling.

Also as housing prices are correlated with the interest rate, if rates were to rise off their recent lows, say to double, we could expect a drop of 20% or more.

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MBA Release
Correlation of real home prices with changing interest rate

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