The Housing Market Is In Full Retreat
Excerpts below from an article from Market Watch indicates, that the pending home sales index hit an all time low in August. One can no longer describe the conditions in the housing market as “beat goes on”, it is now in fall retreat. Home owners still will not drop the prices on their homes, which basically means that the market is bound to crash some more. The original press release can be found at NAR.
The pending home sales index fell 6.5% in August after dropping a revised 10.7% in July, the National Association of Realtors reported Tuesday. The index is at its lowest level since its inception in 2001.
Pending home sales are down by 21.5% compared with a year ago and by 22% compared with six months ago.
"This is still absolutely awful, confirming that the existing-homes market is now in freefall," (my emphasis) wrote Ian Shepherdson, chief U.S. economist for High Frequency Economics. "This is consistent with existing-home sales falling to just 5 million or so," down 10% from the latest level and 30% from the peak.
Sellers still do not realize they must cut prices, said Joel Naroff, president of Naroff Economic Advisers. (my emphasis)
"Fewer contracts were being written because of mortgage availability issues," said Lawrence Yun, senior economist for the Realtors group.
In August, financing for mortgages dried up and dozens of mortgage providers went under as hedge funds, banks and other investors re-evaluated their portfolios of mortgage-backed securities.
"The volume of activity we're seeing today is below sustainable market fundamentals because some creditworthy people are trying to buy homes but can't because of the credit crunch," Yun noted.
I do not agree with comments of Mr. Yun. I talk to mortgage brokers quite often and if you think you are going to buy a home with a credit score of 620 with 3% down, you are wrong. Credit worthy now is defined as anything that can be sold to Fannie Mae or Freddie Mac, the FHA or VA, all of which have strict underwriting criteria. The problem that we have is that potential borrowers either are not in good enough shape to qualify for a mortgage or they are going to the wrong institution. The applicant has poor credit, inadequate income, insufficient downpayment, etc. or they are not shopping enough for good mortgages. Try the regional or nation wide banks, they are doing a lot of fixed rate, full-term, prime lending that can be sold into the well established secondary market or on rarer occassion they are holding some mortgages in portfolio.
The trade group said an informal survey of Realtors showed 10% of sales contracts in August fell through at the last minute because of canceled mortgage commitments. In some areas, 30% of contracts fell through. Sounds to me like too many people are still going to brokers for exotic mortgages. THOSE DAYS ARE GONE.
The index for pending home sales is based on signed sales contracts for existing homes. The transaction is reported as a sale when it closes, usually a month or two after the sales contract is signed.
Pending sales for August dropped in all four regions. Pending sales fell by 9.5% in the South, by 8.3% in the Northeast, by 2.9% in the Midwest and by 2.7% in the West.
Through August, total sales of new and existing homes were down 14% compared with a year earlier and 26% from the peak in mid-2005.