NEW YORK (CNNMoney.com) – The experts expected home sales to drop once the homebuyer tax credit lapsed at the end of April, but the depth of the decrease was shocking.
According to the National Association of Realtors (NAR), pending home sales fell a whopping 30% in May. Their index, which measures signed sales contracts but not closed sales, plunged to 77.6 from 110.9 in April. It’s even off 15.9% from a year ago when the nation was barely emerging from the recession.
“The pending home sales report is a disaster,” said Mike Larson, a real estate analyst for Weiss Research. “Sales fell off a cliff after the tax credit expired. It’s the biggest monthly decline ever and the index is at its lowest level since NAR began tracking it in 2001.”
Here is more depressing news. Mortgage rates are at their lowest in over 50 years, but so are home sales. The paramiters and qualifying rules are shutting out most all buyers. Even if you have good credit, you may not qualify or get re-financing or a new loan.
From the news article above:
Christensen (person in the article) argues that mortgage lending standards have tightened so much since the financial crisis that many people with decent but not-stellar credit can’t qualify. Lenders are demanding stronger credit scores and higher down payments or home equity. “The pendulum has swung too far the other way,” Christensen said. “It needs to come back to the middle.” Overall lending has ticked up in recent weeks, driven by borrowers looking to refinance. But it remains only about half the level of early 2009.
Me thinks the bankers know what’s coming and are unwilling to lend money to anyone without a huge down payment and a very solid employment history.
Think of it this way:
$300K house x 20% down payment=$60 K
Mortgaged at $80%=$240K
If there is a further decline in home values of say 20% the bank has no way to recoup it’s costs if the borrower defaults.
$240K remaining mortgage + for closure cost Average $60K=$180K
Oops and that’s before real estate commissions to sell the house and any repairs and upkeep.
So if the decline in home prices continues there is no way the bank can make any money if the economy gets worse as more people lose jobs and more people are forced out of their homes.
People are probably better off renting for a good long while.
In a bid to stem taxpayer losses for bad loans guaranteed by
federal housing agencies Fanny Mae and Freddy Mac, Senator Bob
Corker (R-Tenn) proposed that borrowers be required to make a 5%
down payment in order to qualify. His proposal was rejected 57-42
on a party-line vote because, as Senator Chris Dodd (D-Conn)
explained, [FONT="]"passage of such a requirement would restrict home ****** ownership to only those who can afford it."
H.R.3706 - FHA Taxpayer Protection Act of 2009
To require borrowers under FHA-insured mortgages for single-family housing to make downpayments of at least 5 percent and to prohibit financing of closing costs under such mortgages.
No action on this bill since last October when it was introduced.
