FHA Loan Houston Blog

by Adam Quinones

The National Association of Realtors released Existing Home Sales data this morning.

Think about the materials that go into building and maintaining a home….WOOD, STEEL, PLASTICS, WIRING, PIPING, CONCRETE, GLASS, ELECTRICITY, FURNITURE, CARPETING ,ELECTRONICS, APPLIANCES….LABOR.

How about the commissions earned by Realtors and mortgage originators who help the borrowers close on their home? What about the home sellers? They are either moving into a bigger house, which implies they will be spending to furnish their bigger home, or downsizing, which would imply a lower payment and therefore more disposable income to spend.

The point is, when homes are selling, money moves around the economy more efficiently. The size of the housing market combined with the broad influences it has over the economy make the real estate sector a reliable leading indicator of economic activity. Real estate is one of the first sectors to contract when a recession is looming and one of the first to show signs of recovery when economic activity begins to improve.

A caveat regarding Existing Home Sales: because existing home sales data is only reported at the time of closing, when the deed is transferred to the new owner, this report is considered less “forward looking” than other housing indicators like Pending Home Sales, Housing Starts, and Building Permits. This is because it can take up to three months for a purchase transaction to close. This problem has been more relevant in recent months as lender turn times have slowed and other roadblocks like HVCC, new RESPA rules, and market volatility have delayed closings. Pending Home Sales data helps provide more timely market data because it reports on the number of contracts that have been signed, not actual closing, therefore giving economists and traders a more timely read on the health of housing.

READ HOW THE NAR COMPILES DATA AND GAIN A BETTER UNDERSTANDING OF SEASONAL INFLUENCES

Last month, the NAR reported that Existing Home Sales in August gave back a portion of their their strong July gains. Existing Home Sales, including single-family, townhomes, condominiums and co-ops, declined 2.7 percent to a seasonally adjusted annual rate of 5.10 million units in August from a pace of 5.24 million in July. This was 3.4 percent above the 4.93 million unit level in August 2008. In the previous four months, sales had risen a total of 15.2 percent.

This month the NAR reported the following:

From the NAR press release…

Existing-home sales bounced back strongly in September with first-time buyers driving much of the activity, marking five gains in the past six months, according to the National Association of Realtors®.

Existing-home sales – including single-family, townhomes, condominiums and co-ops – jumped 9.4 percent to a seasonally adjusted annual rate of 5.57 million units in September from a level of 5.10 million in August, and are 9.2 percent higher than the 5.10 million-unit pace in September 2008.

Sales activity is at the highest level in over two years, since it hit 5.73 million in July 2007.

Total housing inventory at the end of September fell 7.5 percent to 3.63 million existing homes available for sale, which represents an 7.8-month supply at the current sales pace, down from an 9.3-month supply in August. Unsold inventory totals are 15.0 percent below a year ago.

“The current housing supply is the lowest we’ve seen in two and a half years,” Yun said. “If we could continue to absorb inventory at this pace, home prices would return to normal, modest appreciation patterns next year.

The national median existing-home price for all housing types was $174,900 in September, which is 8.5 percent lower than September 2008. Distressed properties continue to downwardly distort the median price because they generally sell at a discount relative to traditional homes in the same area.

Single-family home sales rose 9.4 percent to a seasonally adjusted annual rate of 4.89 million in September from a pace of 4.47 million in August, and are 7.7 percent above the 4.54 million-unit level in September 2008.

The median existing single-family home price was $174,900 in September, which is 8.1 percent below a year ago.

Existing condominium and co-op sales jumped 9.7 percent to a seasonally adjusted annual rate of 680,000 units in September from 620,000 in August, and are 9.7 percent above the 561,000-unit pace a year ago. The median existing condo price was $175,100 in September, down 11.7 percent from September 2008.

Regionally, existing-home sales in the Northeast increased 4.4 percent to an annual level of 950,000 in September, and are 11.8 percent higher than September 2008. The median price in the Northeast was $234,700, down 7.0 percent from a year ago.

Existing-home sales in the Midwest jumped 9.6 percent in September to a pace of 1.25 million and are 7.8 percent above a year ago. The median price in the Midwest was $147,600, which is 1.0 percent below September 2008.

In the South, existing-home sales rose 9.0 percent to an annual level of 2.06 million in September and are 10.8 percent higher than September 2008. The median price in the South was $153,500, down 7.6 percent from a year ago.

Existing-home sales in the West surged 13.0 percent to an annual rate of 1.30 million in September and are 5.7 percent above a year ago. The median price in the West was $219,000, which is 15.0 percent below September 2008.
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Overall, today’s release indicated continued progress in the stabilization of the housing market. However we are troubled by the forward looking statements Yun made regarding the variables that must continue to improve if housing it to undergo further stabilization and recovery.

“We’re getting early indications of price stabilization, but we need a steady supply of qualified buyers to meaningfully bring inventories down and return us to a period of normal, steady price growth and to fully remove consumer fears, which would then revive the broader economy. Without a firm foundation for middle-class wealth recovery, the post-recession economic growth likely will be one of the weakest in U.S. history.”

Given our in-depth involvement in the primary mortgage market, we are not encouraged by Yun’s outlook. Specifically the comment on QUALIFIED BORROWERS. The continual contraction of the labor market and ongoing tightening of lender underwriting guidelines is already having a direct impact on Yun’s recovery assumptions, and we expect these issues to continue to impact the stabilization process.

On a regular basis we are contacted by consumers who complain of higher cost loans and loan denial due to an unexplained drop in their FICO score. We ask the same question each time we hear these outcrys: Did your credit card limits fall? The answer is almost always YES, my credit card limit was cut.  Next we ask, have you missed a payment on your car loan or even a credit card? If the answer is yes…credit scores have been drastically effected, which has resulted in outright loan denial or a higher mortgage rate.

Adding to our relatively negative outlook is the soon to expire first time home buyer tax credit. Yun says the tax credit has played a role in the stabilization so far:

“Much of the momentum is from people responding to the first-time buyer tax credit, which is freeing many sellers to make a trade and buy another home,” he said. “We are hopeful the tax credit will be extended and possibly expanded to more buyers, at least through the middle of next year, because the rising sales momentum needs to continue for a few additional quarters until we reach a point of a self-sustaining recovery.”

We could go on and on about the industry, lender, and borrower specific problems limiting the housing recovery, however we believe the general big picture economic environment is providing enough roadblocks to recovery on its own. Thus, we will continue to state that until the labor market stabilizes and jobs start being created, the housing market will undergo a slow, frustrating recovery process (for mortgage and real estate professionals especially).

Consumers: Have you found the loan qualification process difficult?

Mortgage and Real Estate Professionals: Are you turning down more applicants? Are less deals closing? Are lending regs still tightening?

Are we being too bearish here?