September 1, 2010
Home prices all across the nation seem like they’re a bargain Mortgage interest rates are the lowest we’ve seen in generations. There are millions of houses on the market from which to choose. Why, then, are houses across the nation sitting on the market for so long?
How’s this for happy news during the Summer of Recovery: sales of previously owned homes fell 27 percent in July to the weakest level in 15 years, the National Association of Realtors reported last week. This represents the largest single monthly drop in history and they’ve been keeping these records for 40 years.
Potential home buyers aren’t buying because they think home prices still have further to fall. Potential sellers of homes which are on the market are reluctant to lower prices. While the standoff plays out, home sales are plummeting.
Sharp declines were recorded in each of the four regions of the country tracked by the NAR. The pain, however, is being felt unevenly from state to state and city to city. Some markets are rebounding even as others languish.
Sellers in sluggish markets like Las Vegas and Chicago can expect to wait an average of more than five months to sell their homes, according to real estate broker ZipRealty. It’s even worse in Palm Beach, Fla., where it takes nearly six months, the longest in the nation.
In healthier markets, such as San Francisco and Denver, the average wait is only about two months. Sellers in Washington appear to have the nation’s best major market; they are waiting only about a month and a half. Beyond geography, the sales numbers vary depending on the price of the home.
The biggest drops in sales are among homes in the low and middle price ranges. For example, 47 percent fewer homes in the Midwest priced between $100,000 and $250,000 sold in July, compared with July last year. By contrast, sales of million-dollar-plus homes in that region actually rose slightly year over year.
The statistics, sales and potential prognostications are all skewed because of the temporary Home Buyer Tax Credit the Obama administration had in place until early summer. This spring, government tax credits helped drive sales, especially among first-time buyers of less expensive homes. But those tax credits have expired now, and many people rushed to lock in sales before they did.
Since then, the number of homes sitting on the market has swelled, as there were nearly 4 million homes on the market in July. At the current pace of sales, it would take fifty four weeks to sell all of those homes. By comparison, in a healthy market, twenty six weeks is considered normal.
The housing market is also being hampered by the weakening economic recovery. I know, I know, the Dear Leader promised us it was to be the Summer of Recovery. But just like the little pygmy they call Dear Leader in North Korea, ours isn’t exactly honest. As it turns out, Obama’s Summer of Recovery just isn’t living up to the billing. Unemployment remains stuck in the high nine percent range, and will likely get worse before it gets better. This statistic alone is enough to make potential buyers worry that they might not have a job to pay the mortgage, so they’re not buying.
Although the average rate for a 30 year mortgage has fallen to 4.42 percent, which is essentially the lowest rate in history, I’m still reminded of a time in the late 1980′s, when a prominent real estate industry expert delivered a speech telling a room full of real estate guys that mortgage rates were 10 percent. Moments later, when discussing specific projects, he quoted twelve and a half percent. Naturally I asked what had happened to the ten percent? He said that that rate only applied to the money they aren’t loaning. The money they were loaning was at twelve and a half percent. So, even though rates are fantastic, fewer and fewer buyers can qualify for the loans because that is the money the banks aren’t lending.
Prices have also fallen because foreclosures are occurring at about 10 times their normal rate.
More broadly, the plunge in home sales is magnifying fears that a worsening real estate market might cause consumers to tighten spending, in which case the overall economy would likely suffer further. It becomes self fulfilling.
Uncertainty of what lies ahead is a scary thing and we have an administration that specializes in uncertainty. The one thing of which we can be certain with the Obama Administration is that their social justice and wealth redistributive tendencies will keep businesses from expanding, which will, in turn, keep unemployment high, which will in turn… As I said in an article earlier this month, the entire economy is going to remain anemic as long as we have a socialist in the White House. Batten down the hatches.