Home prices and mortgage rates are low but credit is hard to get. Existing-home inventory is abundant while new-home inventory in August was 207,000 units – 1.0% lower than the figure for July, and at its lowest point since 1968. The slow economic recovery, the stubbornly high unemployment rate, and the glut of distressed properties have homebuilders and prospective homebuyers frozen in their tracks. And so on.
This set of market dynamics has persisted, undisturbed, for a couple years, save for the brief disruption caused by the homebuyer tax credit. But it now seems one other thing has been introduced to the mix: a measure of stability.
Commerce Department figures released on Friday show that sales of new single-family homes were unchanged in August, matching July sales figures and holding at a seasonally adjusted annual rate of 288,000 units. Sales of new homes increased in the Northeast and West by 16.7% and 54.3%, respectively, Commerce Department figures show, but the Midwest and South posted declines of 26.1% and 10.8%, respectively.
Existing-home sales increased 7.6% to a seasonally adjusted annual rate of 4.13 million in August from an upwardly revised 3.84 million in July, but remain 19% below the 5.10 million-unit pace in August 2009, according to the National Association of Realtors.
Steady as she goes, so far
As a recent New York Times story on the existing-home sales figures pointed out, the fact that August sales didn’t fall and met analysts’ expectations counts, in this market, as good news. Likewise for the new-home figures, which are “in keeping with recent builders surveys that indicated that most potential home buyers have put off buying due to uncertainty about the economy and job market,” observed homebuilder Bob Jones, chairman of the National Association of Home Builders, in an NAHB press release.
NAR’s president, Vicki Cox Golder, a broker based in Tucson, Arizona, noted that consumers have been getting mixed signals about the housing market. “People understand the good affordability conditions with stable home prices in most areas, but they’re concerned about the economy and speculation on Wall Street,” she said, adding that “we need to stick with the facts about the long-term value of homeownership and avoid unrealistic assessments. Tight credit and slow short sales are ongoing problems – expediting short sales will help the market to recover more quickly.”
A possible remedy for reduced equity
There has been a lot of media attention directed at homeowners whose properties are underwater – worth less on the current market than the principal on the mortgage. Many of them could decide to act entirely in their self-interest and walk away from their properties, default on their loans, and let their house go into foreclosure – although that doesn’t seem to be happening at anywhere close to the rates that could drive the foreclosure situation much deeper into the ground.
And in fact a CNBC story published on Friday points to a refinancing trend among the equity-short that has them using cash (a key ingredient) to qualify for a new loan at a lower rate. The article points to Freddie Mac statistics showing that 22% of all refinancing in the second quarter of this year was of this sort – a process known as cash-in refinancing. Prospective cash-in candidates obviously have to factor in closing costs and how long they expect to hold on to the property, since this typically isn’t a good deal for short-timers. But for those who have the money and the desire to stay in the house, significantly lower mortgage payments (and possibly a shorter-term loan) can make good financial sense over time – and keep the temptation to walk away at bay.
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