Expect a Pickup in New Home Sales: Khan

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Aug. 23 (Bloomberg) -- Wells Fargo's Anika Khan discusses the outlook for the U.S. housing market with Mark Crumpton on Bloomberg Television's "Bottom Line." (Source: Bloomberg)

Today's numbers, are they a bad thing?

Does this reflect concern about the sustainability of the recovery or is this a pause?

This is a very good question and that is a question that everyone is asking.

I don't think that this is necessarily showing a trend.

This is a one-month number.

It did make a steep decline and we did see a lot of broad-based declines on the region and also through prices.

However, we think that a correction was in store and we will probably see a payback in the second half of the year.

What are we talking about?

We will probably see just overall somewhere in the 400, 425, 450 level.

This is the first time that we saw new home sales decline below the 400 level.

That was very surprising.

We will probably see a pickup.

What is important to note is that some of the price changes up until this point, we have seen the move-up buyer who likely was taking part in the lower mortgage rates.

Now, we are starting to see a lot of that buyer start to trade down to a smaller home or think about trading down.

The other part we saw was the first time home buyer and that price range is also having trouble.

Purchases declined in all four regions of the country in july.

Out west, that slump was 16 point one percent.

What is happening in that region?

In the west, there is a lot of investor activity that is taking place or has taken place.

We are starting to see investor activity overall are starting to fall as we are seeing less foreclosures and less short sales.

As that continues, you will see a lot less activity happening.

However, it is open the door to a traditional buyer on the existing side and the builders don't have as much competition as they have had in the past.

They are able to play around with places just a little bit more.

You just spoke of builders.

You have been looking at sentiment.

What do their numbers tell you?

The builder sentiment numbers continues to be solid.

In fact, the level as the highest since 2005. clearly, there is a disconnect.

The other disconnect is when we are looking at existing home sales.

In july, we saw an increase.

Those data points point two the sustainability of the housing recovery.

I think this new home sales number, it is probably just a one-month drop.

The builders, will they be forced to limit supply of new homes in an attempt to boost prices?

For the builders, inventory is already at a very low level.

It continues to be at a historical low.

Every month, we are beginning to see more inventory.

They are noting that this is at an unprecedented highs.

They gradually releasing the inventory.

We see a limited inventory on the new home side as well as existing.

That means we will see a bit of a boost in prices which we will probably get when we see more inventory in the market.

I'm speaking with a residential economist from wells fargo.

She is joining us from charlotte.

Because existing home sales figures were strong, do those numbers provide a counterbalance to the new home sales numbers released today?

I think it is important for existing, even though the headline continues to increase, we have to look at the inventory for existing and the mix of sales, with the sales at 15% and definitely off of its year level, we are seeing more traditional buyers in the market.

Inventory slowly creeping up.

I think we are seeing a more healthy housing market recovery despite some monthly volatility.

How does the dollar factor into what we are seeing?

I think a big part and we look at the dollar is that a lot of emerging economies that have done well against the dollar are definitely looking at the housing market.

Many of them have purchased a lot the distressed transactions or the distressed properties.

They have gone into the market and purchased a lot of the foreclosures.

Now, the we are starting to see less of that foreign buyer in the markets.

Are we starting to see a lot of institutional investors snapping some of this up as well?

They still are in the market, but we have probably seen eight heat in institutional, foreign, as well as mom-and-pop buyers in the market.

There are just not as many distressed transactions or sales, foreclosures that are in good condition are few and far between at this point in the recovery.

The housing market is sensitive to interest rates.

How is the talk of the federal reserve impacting housing?

That is a very good question.

For mortgage rates overall, it is still too early to tell.

The thing to keep in mind is that rates are still at a very low level.

At this point, we look at the breakout of stages of the new homes.

If we look at those that have not been started, of course, we saw a huge downward revision.

A lot of that was in homes that have not been started.

This gives the indication that we are probably seeing some cancellations.

Many buyers are likely trying to see where rates and up.

Mortgage rates have risen a full percentage point since may.

How much of an effect has that had on the momentum we have seen in housing?

It has probably had some impact, but to date we haven't really seen a huge impact overall.

Again, we tend to think that buyers are not going to change their buying -- they're wanting to buy a home.

They might change the scale of home.

They might is like not to buy a $400,000 home.

I think that is where we will see some of the activity.

Are the buyers owners who will be living in these homes or are they investors looking to rent?

It is a mix.

When we look at those numbers, they are probably about 30% of the sales that are investor specific and it is mostly folks that are getting out into the market, pent-up demand, and trying to get a good deal.

Where do you see housing between now and the end of the year?

We are still very optimistic on housing.

It will still be a contributor to economic growth.

We can't continue to see that upward momentum.

This text has been automatically generated. It may not be 100% accurate.

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