by Calculated Risk on 7/12/2013 08:48:00 PM

Cardiff Garcia writes at Alphaville (with some quotes from analysts): US housing’s resilience

The Q2 results from Wells Fargo and JP Morgan have again raised the issue of declining mortgage refinancings (if rates stay elevated), along with spurring more general worries about the housing market.
...
From a macro perspective, refinancings certainly help, but not as much as housing construction activity ...

This is a good excuse to excerpt from a post I wrote over a year ago: Home Sales Reports: What Matters

The key number in the existing home sales report is not sales, but inventory. It is visible inventory that impacts prices (although the "shadow" inventory will keep prices from rising).

When we look at sales for existing homes, the focus should be on the composition between conventional and distressed. Total sales are probably close to the normal level of turnover, but the composition of sales is far from normal - sales are still heavily distressed sales. Over time, existing home sales will probably settle around 5 million per year, but the percentage of distressed sales will eventually decline. Those looking at the number of existing home sales for a recovery in housing are looking at the wrong number. Look at inventory and the percent of conventional sales.

However, for the new home sales report, the key number is sales! An increase in sales adds to both GDP and employment (completed inventory is at record lows, so any increase in sales will translate to more single family starts).

It might be hard to believe, but earlier this year [in 2012] there was a debate on whether housing had bottomed. That debate is over - clearly new home sales have bottomed – and the debate is now about the strength of the recovery.

The composition of existing home sales has moved to more and more conventional sales - a good sign (I wrote the post above over a year ago).

As Garcia notes, the key for housing is construction activity (new home sales and housing starts) and I expect activity to continue to increase.

I wouldn't be surprised to see a decline in existing home sales as investor buying slows (and distressed sales slow). Some people will see that as a sign of weakness for "housing". They will be wrong.