New Homes, Old Homes, Not Sellin’ Homes

More dour housing market news — The National Assoc...

More dour housing market news — The National Association of Realtors announced today that its index of signed purchase agreements fell 6.5 percent to its lowest level on record.

(Now, granted, the NAR has only kept a record since 2001, but it’s hard to feel much better when you still consider that means the least amount of people in the U.S. in six years decided to buy previously-owned homes in August.)

Given that the index of signed purchase agreements fell 11 percent in July, it’s not exactly a total shock — but we’ve read too many "lowest point" and "new low" headlines in the past few months to not shudder a bit at the news.

And take a look back at August 2006? Home sales are down 22 percent. (That’s worth at least a shudder, maybe even an upgrade to a loud shriek.)

So now, we can add poor pre-owned home sales to the list of ingredients that have been carefully blended into the recipe for a housing crisis (mix with water, market panic and bake at 350 degrees for about three months), including:

  • Stricter lending guidelines. More than 10 percent of signed contracts in August fell through because buyers couldn’t secure financing, NAR senior economist Lawrence Yun told Bloomberg.
  • Higher borrowing costs. As many as 2.5 million homeowners with ARMs secured when rates were super low are going to see their rates reset this year. Many of them, lured in by enticement rates and mortgage incentive programs now commonly judged too risky to offer, are in for a big cost jump. (And if they have credit issues, the harsher lending guidelines aren’t going to help.)
  • Sinking home values. Home prices in the top 20 U.S. cities fell 3.9 percent in July compared to 2006. That’s a dangerous situation for homeowners who took out home equity-based loans several years ago when the market was solid. The Financial Times declared last week that subprime mortgage homebuyers who thought their equity would increase enough to let them refinance before rates increased may become very familiar soon with three new words: negative home equity.

Higher borrowing costs, stricter lending practices and plummeting home sales and values have led to a string of defaults. Perhaps that’s why Morgan Stanley announced today it will be focusing on its mortgage servicing business – which in part handles delinquency payments — and laying off 600 employees in its residential mortgage business.

It makes sense, as we know consumers aren’t buying new homes — private residential building dropped to its lowest spending level since November 2003 in August.

New home sales are down. Previously-owned home sales are down. Home values are falling. It seems, unfortunately, that the market is due for some more bad news.

How can we dig ourselves out of the housing market hole? Thoughts on reversing the residential decline in tomorrow’s MHN Out and About blog.