Earlier this morning, investors received the latest report on the housing market, and much to their chagrin it was another weaker-than-expected snapshot on this beleaguered sector of the economy. The data also quickly wiped away some of yesterday’s good feelings following data that showed housing starts for the month of September rose 15% sequentially--the same release showed that building permits were off 5% month to month. Meanwhile …
The National Association of Realtors reported that total existing home sales, which are completed transactions that include single family, townhouses, condominiums, and co-ops, fell 3.0%, to a seasonally adjusted annual rate of 4.91 million, in September. That figure was from an upwardly revised 5.06 units in August. Year to year, the existing home sales were up 11.3% from the 4.41 million unit pace in September of 2010. Investors, though, should note that the double-digit advance was off of a very depressed year-earlier base.
Even with affordability being very attractive—the Freddie Mac national average commitment rate for a 30-year fixed-rate mortgage fell to a record low 4.11% in September—buyers are remaining on the sidelines. National Association of Realtors President Ron Phipps opined: “ All year we’ve been discussing the fact that many creditworthy home buyers are being denied mortgages, and on top of that, loan limits have been lowered, meaning buyers of higher-priced homes, including many in more expensive housing markets, now have to pay a higher interest rate for a jumbo mortgage than buyers who can qualify for a conventional loan.” Our sense is that until these roadblocks are removed, or at the very least scaled back, a sustained recovery in housing will be difficult to come by.
Another discouraging sign was the drop in the national median existing home selling price. Homes sold for $165,400 last month, down 3.5% year to year. The increased supply of distressed properties on the market likely had a big hand in the sales price erosion. Distressed properties accounted for 30% of sales in September—18% were foreclosures, while 12% were of the short-sale variety. More significant, the total housing inventory at the end of September stood at 3.48 million units, which represents an 8.5-month supply, up slightly from the 8.4 months supply in August.
From a regional standpoint, existing home sales rose 2.6% in the Northeast, but fell in every other region across the country. Specifically, existing home sales declined 0.9%, 2.6%, and 8.8% in the Midwest, South, and West, respectively. In the western United States, the aforementioned lending restrictions appeared to play a huge role in the sharp decline in home sales. Lawrence Yun, the National Association of Realtors Chief Economist, noted “The falloff in Western sales from a surge in August was expected because many lenders had lowered mortgage loan limits over concerns that sales wouldn’t close before the higher loan limits expired at the end of September.” Unfortunately for this struggling industry, we don’t see these restrictions being loosened anytime soon, as the troubles stemming from the subprime lending debacle in late 2008 are still on the minds of the major lending institutions.
In conclusion, this latest data are yet another troublesome piece of news for the struggling homebuilding companies. The report showed that many people are still very reluctant to purchase a home now more than two years after the recession officially ended. Even the lowest mortgage rates in memory have not been enough to lift sales.