By Mike Colpitts
A slowdown in home sales during what is usually the hottest time of the year for home buying activity just may be the new normal in real estate. The erratic ups and downs the residential market is suffering are setting home sales up for a long recovery process with a series of major adjustments. The most serious change may just be a nearly unprecedented permanent move towards lower home prices.
The adjustment to lower home values is already being felt in some areas of the U.S. that have been devastated by the foreclosure crisis, including most markets in the 18 hardest hit states that have been targeted by the White House by the Hardest Hit Fund to help the unemployed. The drastic change in housing values isn’t exactly unprecedented. The 1980’s Savings & Loan Crisis and the Great Depression left long lasting impacts on home values. But the enormity of this real estate crash is much wider and deeper in volume and monetary reductions.
Existing home sales are usually at the highest levels during the peak summer selling season, but high unemployment, economic uncertainty and weak consumer confidence in the housing market are holding any real sort of recovery back, and that impacts home prices. Values of homes in most of the country are still on the decline and are projected to remain that way by Housing Predictor analysts until unemployed workers are hired at a more rapid pace.
Existing home sales reported by the National Association of Realtors declined just 0.8% in June, but stood at a seasonally adjusted rate of 4.77 million combined housing units on an annual basis. The over-supply of inventory is retarding a bounce back in home sales with a growing volume of inventory as homeowners hoping to move during the summer place their homes fore sale on the market. About half of all transactions during the month were from move-up buyers, which is weaker than usual for this time of the year.
Ron Phipps, NAR president, is concerned about the housing market. Lower jumbo mortgage loan limits, due to go into effect on October 1, are already having an impact. “Some lenders are placing lower loan limits on current contracts in anticipation they may not close before the end of September,” said Phipps, a broker in Rhode Island. “As a result, some contracts may be getting cancelled because certain buyers are unwilling or unable to obtain a more costly jumbo mortgage.”
Existing condominium sales have been one bright spot for the sluggish market in Florida and California, but were below May sales figures during June on a national basis. Bargain hungry foreign buyers are converting their currencies for lower priced condos in many regions of the country, and are gaining substantial values as a result of a weaker U.S. dollar. The existing condo median price was up 0.6% for the month over a year ago.
First time entry level buyers were buoyed as at least a partial rescue for the market by the federal government’s offer of a tax credit a year ago, but the credit didn’t transform the housing market, only moving the timeline up for first time buyers to make their purchases.
There is little doubt the Obama administration will make any additional moves that would produce a major transformation in the housing market with the upcoming presidential election nearing. In the mean time, home prices are forecast to decline in most areas on slower sales.