April sales jump, but warning signs flashing ahead

The expected rush towards the end of the tax credit period was reflected in a whopping 32% year over year increase in Cincinnati area sales, 22% on a national basis. And the hits just kept on coming:

• Sales from January to April are up 8.34% over last year
• Total dollar volume of Cincinnati MLS sales through April is up 21.98%
• The local inventory to sales rate fell to 7.52 months, the lowest April rate since 2006.
• Nationally, new home sales increased 14.8% and the inventory of new homes fell 5.8%
  
• Pending sales rose 5.3% nationally
  
• The median sales price increased to $173,100 nationally, $150.3K locally.
  

(view local April charts)

But with all the feel good news, there are telling signals that the road to a stable housing market will be bumpy. Some of the caution flags include:

• The inventory level inched back up. If pending sales drop off after April, we are likely to see the absorption rate move back higher and increase the duration that homes are on the market.
  
• Although housing starts increased, building permits, a forward looking indicator of construction activity, declined 11.5% from March.
• Foreclosures and delinquencies continued to increase. While we may be nearing a peak, this will also continue to pressure prices. (One positive - a lot of investors are snapping up properties at the low end which creates a pricing floor while clearing inventory.)

Anecdotal evidence from my own experience and comments from other agents suggests that buyers have gone back to a "I'll take my time" approach so that they can feel they are getting the absolute best bargain available. That mind set is likely to prevail until interest rates start heading higher, inventory falls, and the unemployment rate declines.

Mortgage rate fall in May a bit of surprise

The drop in mortgage rates in May just goes to show you how unpredictable markets can be. Nearly all the "experts" were expecting for mortgage rates to start heading higher this month given the fact that the US Treasury ended its program to buy mortgage-backed securities in April.

For a few days, rates did rise. Then, rather suddenly, some events occurred - including the "flash crash" and concerns over Greek bonds and the sustainability of the Euro - which had everyone scurrying to buy all the Treasuries they could get their hands on. The correlation between Treasury rates and mortgage rates is not perfect, but is definitely strong. Here at the end of May we are seeing mortgage rates back down to some of the lowest in 25 years. I am getting notices from lenders of rates at 4.75% on standard 30-year mortgages and hovering just a notch above 4% on 15-year loans.

Refinancing on the rise, purchase applications fall:

As happens when rates take a significant drop, refinancing applications had double digit percentage increases. The more troublesome statistic, however, is that new purchase applications have fallen from previous weeks. That fall off was expected, at least partly, given the end of the home buyer tax credit. Nevertheless, with such a significant drop in rates one would hope that purchase applications would be stable and signal that there are still home buyers out there looking to take advantage of lower prices.

While we obviously can't predict what the future holds, there is some likelihood that what we've experienced this past month is somewhat temporary and that rates will begin to head upwards sometime later this year. It may be worth a look to determine if you can take advantage of the rates as they are now. One place to start is to check these rate monitors and refinance calculators:

• Yahoo! Real Estate Information
  
• Java Calculator at Dinkytown (this shows a lot of good information - just takes a minute to load)
  

Lennox product lets homeowners take baby steps to solar

Lennox is expected to make available a second generation of its solar-powered heat pump or "SunSource Comfort System" sometime later this year, currently introducing it at trade shows and reseller venues.

Essentially a high-efficiency heat pump adapted to operate with assistance from solar panels, the product offers a way for homeowners to take a modest step towards offsetting some of their energy usage.

The first-generation product, which the company still has posted on their website, is interesting in concept but fairly limited in features. The 2nd generation product, on the other hand, has expanded its capabilities which are likely to draw in a wider market. Some highlights of this product I noticed include:

• Installation of solar panels is "expandable." That is, you can add panels as need and budget dictate. The first generation product used only a single panel.
  
• It appears to simplify a tie-in to your electric provider (e.g., Duke) so that electricity produced when the heat pump is not in use can offset your other household electric usage.
• A 3-panel installation is effectively "net zero" relative to the energy used by the heat pump, i.e., the energy produced by 3 panels over a year will offset the amount needed to heat and cool your house. Of course, that is based on expected averages and an individual installation could deviate significantly.
  

In its current form, the company does not seem to be promoting this as a cost-saving product. Rather, it is aimed primarily at those who want to be seen as early adopters of green technologies.

At the time I saw their presentation, company reps that I spoke with were not yet ready to define a typical installation cost. But from what I gathered, a 3-panel installation with heat pump may cost 3 - 4 times a standard installation. Some of this cost would be offset through a 30% tax credit for renewable energy, yet there is still some question as to whether the entire system would count towards the credit or only the solar panel portion. It is also likely to face strong competition from geothermal systems which are also eligible for the renewable energy credit and have become extremely cost competitive with traditional systems when operational costs are factored in.

While it may not be ready to recommend from a cost-efficiency standpoint, it is nonetheless something to keep an eye on in future generations of its development. What may be of most interest is whether a relatively household brand name like Lennox can open doors for more solar power installations.