Category: Housing Market

The usually optimistic housing sales forecasts and comments from the National Association of Realtors® are beginning to become more realistic under the weight of relentless month after month falling home sales.

What they call a “mix of housing activity” doesn’t address the problem of a credit crunch like this nation has never before experienced. The poison spread from the subprime mortgage market has infected the entire credit market for housing. Even people with good credit are finding it challenging to secure home financing.

Here is the full press release from the NAR about March existing home sales activity.

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Existing-home sales edged down in March, remaining within a narrow range of sales activity that has persisted since last September, according to the National Association of Realtors®.

Existing-home sales – including single-family, townhomes, condominiums and co-ops – were down 2.0 percent to a seasonally adjusted annual rate (1) of 4.93 million units in March from a level of 5.03 million in February, and remain 19.3 percent below the 6.11 million-unit pace in March 2007. A rise in condo sales in March was offset by a drop in single-family sales. Regionally, sales rose in the Northeast and West but fell in the Midwest and South.

Lawrence Yun, NAR chief economist, said the market is performing unevenly. “Though mortgage rates are at historically low levels, some borrowers are facing restrictive lending practices in declining markets,” he said. “At the same time, many buyers continue to bide their time with a large number of homes to choose from, while other potential buyers remain on the sidelines.”

“I don’t know where the tipping point is, but somewhere when a borrower crosses the 100 percent loan to value, somewhere north of that … their propensity to just default and stop paying their mortgage rises dramatically and really accelerates up. It’s almost regardless of how they scored, say, on FICO or other kinds of credit characteristics,” Wachovia chief risk officer Don Truslow told analysts on a recent conference call.

Jingle mail is something new in America. Never before have so many people simply walked away from homes that they owe more on than they could realize by selling the home in today’s weak housing market. Once underwater on the mortgage they abandon their homes and mail the keys in to the bank.

Wachovia Corp. has changed its models on how quickly loans will go bad in the face of what it called “unprecedented” changes in consumer behavior. People are now much quicker to walk away from underwater mortgages and let the banks worry about realizing any proceeds from the sale of the home. Prior FICO scores don’t seem to make any difference either. Once a homeowner has no equity left in the home many of them just send in the jingle mail.

This worrisome trend seems to be accelerating as the housing market continues to weaken. It is a huge problem for the banks as they are ill equipped to properly take care of a flood of vacant houses. Many of the house quickly run down and become blights on the neighborhoods causing housing values in the area to fall even more.

The US housing report remains grim as the release Friday by The Dept. of Commerce indicated new home sales declined 9.0% in November to an annualized rate of 647,000 units. That level marked a 12-year low and was well below the consensus estimate which had been guesstimated at 715,000. Treasuries rallied on the report with the 10-year note jumping a point and bringing its yield down to 4.07%.

The housing report is not good news for the US economy and should be taken as a warning that a 2008 recession is probably in the cards.

On Friday as you might expect the housing news weighed heavily on the home building stocks which comprised today’s worst-performing industry group (-3.2%). The thrifts & mortgage group (-3.0%) followed close behind in an association trade that was tied to a belief that demand for mortgages will remain depressed in 2008 along with the housing market.

Do not expect a soft landing in the housing market or for the US economy. 2008 will likely be a very tough year with a number of major homebuilders filling for bankrupcy protection.