Diana: The enormous drop in July new home sales really shocked the market and today the bears are taking on the bulls in force. Let’s recap for a second.

July new home sales dropped over 13% month to month. existing home sales actually bumped up a healthy 6 .5%. why the skep? New home sales numbers are based on signed contracts in July and existings are based on closings which were contract signed in May or June.

If you take a look where rates went from May through July, the jump from 3.5 to over 4.5% according to (doomer) analyst Mark Hanson made houses 15% more expensive and it is just the rates. Home prices up over 8% from a year ago ascoreding to a new report today from Lender Processing Services and this is a lower reading than others like Case-Shiller. They claim a larger survey sample and more accurate way of accounting for the impact of distressed sales on home prices, we know fewer stressed sales and you have rising rates and rising home prices and I call it a toxic cocktail for housing on the new home numbers.

Seabreeze partners says housing ‘blew up’ and others claim it is just seasonal.

One more factor is investors. They have been fueling housing for the past few years and pumping up prices in the hardest hit markets and they made up just 16% of buyers in July according to the realtors and that’s down from 22% in February and first time buyers are not filling in, not coming back and still at less than a third of the market and should be over 40%.

So the bulls are saying, well, one month does not a trend make.

I will say I have never heard more bears out than I have today, not in the last couple years anyway.

CNBC: Diana, stick around while we talk about this with Mike Murphy, our resident housing bull.  It is undeniable at this point it is having an impact if you listen and look at Diana’s report and the charge that she showed. you have a serious issue, investors dropping off and first time home buyers.

Murphy:  Here is one thing I point out. the numbers don’t lie. you talked about rising mortgage rates. I would argue, being bullish on this space, I would argue that mortgage rates have risen and that’s the past, and going forward, there is nothing out there really to tell you that rates are going to continue to rise and they have leveled off here and we also know and I think this is a key point, we know that the administration is very focused on keeping the housing recovery going. would you agree?

Diana: Yeah, but I would argue that you saw this jump up in rates two months ago and that had a lot of people on the fence jump off and jump into housing and worry that rates were going to go even higher and so you did have that bump up in sales that we saw through the summer and I wonder if that’s not going to be pulling numbers forward from the fall home sales. I just got off the phone with Glenn Kelman and he is seeing a huge slow down in existing home buyers now and says arm chair investors who are using credit are getting out. We may think that mortgage rates aren’t going much higher, but a lot of folks out there think they still may.

CNBC: Diana, thanks as always.

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