More Housing Market Gloom Predicted This Spring
April showers bring May flowers, but slow mortgage loan activity and April home sales may just bring more rain, as the spring selling season is looking mild at best this year.
The National Association of Realtors will announce new-home sales on May 24 and existing-home sales on May 25, and experts are not going to be doing much expecting of improvement.
Even the NAR has lowered its expectations after remaining steadfastly upbeat throughout much of the national housing market correction.
On May 1, the group reported that home prices would remain soft throughout April and possibly into May, diverging from usual strong spring trends.
The NAR’s Pending Home Sales Index, a forward-looking indicator based on contracts signed in March of 2007, fell 10.5 percent from March, 2006, to the lowest reading since March of 2003.
This news was no surprise, especially after existing-home sales fell 8.4 percent in March of 2007, from a year ago, the sharpest year-over-year decline in 18 years.
Housing economists have been taking the bad omens to heart.
On May 9, the NAR went as far as to revise its earlier forecasts, citing the very detrimental impact of tighter mortgage lender standards on market demand.
Existing sales are expected to be down 6.6 percent in the second quarter of 2007 and 2.9 percent for the full-year, compared to previous predictions of declines of 6.1 percent and 2.2 percent in the housing market, respectively.
New single-family sales will decline 21.5 percent in the second quarter and 17.8 percent in 2007, the NAR predicts.
“Obviously, if you’re a [bad credit home loan] borrower and you want to buy a home, you’re pretty much being shunned by lending institutions,” says Moody’s Economy.com Senior Economist Zoltan Pozsar.
“That’s a drag on home sales, both new and existing.”
Moody’s Economy.com is forecasting both new and existing home sales to stay essentially unchanged in April from March, meaning comparisons to last year’s numbers would be equally poor.
In addition to stricter mortgage lending, buyer psychology is hurting sellers.
“Everyone’s now on the sidelines waiting for a discount,” says Pozsar. “If I wanted to buy a house in Florida, I wouldn’t do it now, I would wait a year. The market’s not frozen, but if you bought a house in ‘05 or ‘06, you’re flat or underwater.”
New-home sales are almost always upstaged by the NAR’s more reliable and more telling existing-homes data. Existing homes represent a much larger segment of the market — about 85 percent of total sales — and they’re recorded at the settlement, or once the keys change hands.
New homes, on the other hand, account for the other 15 percent of sales, and are recorded when a contract is signed.
If recent housing-starts data and home builders‘ earnings announcements are any indication, new-home sales in April declined at a much faster rate than existing-home sales did.
What’s the good news? Well, the disappearance of speculative buying could benefit the home mortgage seeker and the market in the long term.
“Housing is first and foremost shelter,” Yun says. “People are now buying homes for shelter reasons with the expectation that if they hold onto it for a long period, they can see a modest gain.”
Indeed, investor purchases of homes were down 29 percent in 2006, according to the NAR. Regarding prices, the group is anticipating a 1 percent drop in the national median home price in 2007.
“After a 50 percent increase during the boom, that’s not a correction, it’s a small blip,” Yun says. “The word ‘correction’ implies that there are far fewer sales. We’re just back to long-term healthy fundamentals.”
SOURCE: Business Week