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Housing Numbers Up, But Don't Get Too Hopeful

Sales of new homes rose 9.6 percent in July, which is an uptick for the fourth month in a row. Nearly three-quarters of Home Depot's markets had stronger sales in the second quarter than in the first quarter. And a popular housing price index shows that housing prices ticked up in June, "a convincing sign that the worst housing slump of modern times is coming to end," says David Streitfeld of the New York Times.

So why am I not breaking out the champagne just yet?

For one thing, that gigantic sucking sound you hear is the commercial real estate market poised to go down the drain. We haven't seen commercial prices fall much yet because there hasn't been any lending, so there haven't been many deals. But investors in the know, such as Colony Capital's Tom Barrack, are convinced it's going to drop hard and fast.

And residential? The signs point to a bifurcated market, where the low-end may be stabilizing but the higher end still has troubles. This is an argument I made last month in "Housing Prices Bottom, but not for Everyone," but blogger Joe Weisenthal was kind enough to make it again on The Business Insider. He quotes mortgage analyst Mark Hanson as calling the price numbers a "false bottom."

What we're seeing is the normal seasonal uptick, where deals are made in the spring, so people can move in the summer to get their kids ready for a new school. The typical seller isn't distressed, but instead, "the person who bought years ago that has enough equity to dump the price, sell, and have enough left over for the down payment on the house they plan to steal in the desert," Weisenthal says. (Oh, go ahead, read the whole thing; there's a cool chart.)

Home Depot, meanwhile, isn't reflecting the recovery so much as eating the lunch of smaller competitors like Lowe's, which showed a second-quarter profit decline of 19 percent. Meanwhile, Marketwatch's Rex Nutting (who for my money is one of the top housing reporters in the business) notes that while the new home sales increase for June is 9.6 percent, the margin of error on the statistic is plus or minus 13.4 percent.

So the only way to really read this market is to look at its underlying drivers. It seems pretty clear that the tax credit for first-time buyers is helping and the price correction housing has undergone is helping (the Commerce Department's new home sales release notes the median price of new homes sold in July was $210,100, down from a median of $237,300 a year earlier).

What's less clear is the role of mortgage lending. It doesn't matter where consumer confidence is if potential buyers can't get loans to finance their purchases.

Here in New York, the high-end has been somewhat frozen, as it's been really tough to borrow more than a million bucks. That may be changing, since trade publication The Real Deal reports that lenders like Chase and Citi start to come back into the market (Disclosure: I've done some consulting for The Real Deal).

Nationally, it looks like jumbo mortgage rates are coming down, which may entice high-end buyers. Brian McKay of MonitorBankRates.com notes that the 30-year-fixed jumbo rate, which hit a peak of 6.64 percent in mid-June, is now at 6.14 percent.
I think we'll have a lot more clarity on real estate in three months, when we see how lending plays out and what kind of fall we have. In the meantime, I'll be drinking Fresca.

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