Home Sales Drop to Lowest Level in Four Years
Sales of existing homes fell in May to the lowest level in four years, and prices dipped for the 10th month in a row, the National Association of Realtors said Monday. The cause?Home buyers are still nervous about the housing market and some are having trouble getting mortgage loans.
Home sales in May slid to a seasonally adjusted annual rate of 5.99 million, almost flat from April, but off about 10% from May last year. For single-family homes, sales were down 11% from a year ago; condo market sales were off about 7%.
And there is no relief in sight for home sellers for at least the next few months because the inventory of properties on the housing market has swelled to an 8.9-month supply, highest in 16 years. That will continue to force homeowners to cut prices to entice hesitant buyers.
“The housing market may not be in a free fall, but it has not hit bottom yet, either,” said Joel Naroff, president of Naroff Economic Advisors.
While the backlog of homes for sale is one problem, another is buyer psychology. Home purchase loan borrowers are more reluctant to get into the market when prices are falling. The median price for an existing home fell about 2% to $223,700 from a year ago.
“People just don’t have that confidence to enter the home buying market even though they have the financial capacity,” says Lawrence Yun, NAR senior economist.
But he also said a significant number of would-be home buyers are having loan applications rejected. Nationwide, mortgage companies have tightened their lending criteria, demanding buyers have better credit scores, solid jobs, bigger down payments and reserves in the bank.
The tighter lending standards are in reaction to a record number of loans going into foreclosure as a result of loose lending standards during the real estate boom.
Though he still expects the market to turn around by the end of the year, a lot will depend on interest rates, which crept up this month. When the Federal Reserve meets at the end of this week, however, policymakers are widely expected to hold their target for mortgage rates steady, partly because the lifeless real estate sector continues to be a drag on the economy.
The Commerce Department will release data Tuesday for new-home sales, and Stuart Hoffman, chief economist for PNC Financial Services, expects a “sharp decline” in the numbers.
A survey of home builders last week showed their confidence levels had plunged to the lowest level since 1991. Buyers are still cancelling orders, despite promises of free swimming pools, landscaping and other upgrades. In some cases, the buyers can’t sell their existing homes, and in other cases they can’t qualify for a home mortgage loan.
Hoffman said, “I don’t expect (the real estate market) to hit bottom for at least another year.”
SOURCE: USA Today