Existing-home sales were down in August following a healthy gain in July as tight mortgage credit curtailed activity, according to the National Association of Realtors. Sales rose in the Midwest and South but fell in the Northeast and West.
Nationally, existing-home sales — including single-family, townhomes, condominiums and co-ops — declined 2.2 percent to a seasonally adjusted annual rate of 4.91 million units in August from an upwardly revised pace of 5.02 million in July, but are 10.7 percent below the 5.50 million-unit pace in August 2007.
Richard F. Gaylord, NAR president, said the pendulum in the mortgage market has swung too far. “The difficulty in obtaining a mortgage increased over the past couple months, making it more challenging for creditworthy borrowers to find financing,” he said. “Our hope is that overly tight lending criteria can be loosened with reasonable standards and credit so that sales activity can catch up with demand. Interest rates have already declined, but there is a serious question as to whether a cash infusion by the U.S. Treasury into Wall Street would help consumers by improving mortgage funding.
According to Freddie Mac, the national average commitment rate for a 30-year, conventional, fixed-rate mortgage rose to 6.48 percent in August from 6.43 percent in July; the rate was 6.57 percent in August 2007.
Lawrence Yun, NAR chief economist, said the recent drop in interest rates is an immediate impact of recent government action. “August sales reflect higher interest rates before the government takeover of Freddie Mac and Fannie Mae, and the sudden drop in mortgage interest rates over the past couple weeks is improving housing affordability,” he said. “With higher loan limits and a beefing up of the FHA program, all the mechanisms have been falling into place to increase mortgage availability.
The national median existing-home price for all housing types was $203,100 in August, down 9.5 percent from a year ago when the median was $224,400.
“The median home price reflects more transactions related to subprime loans,” Yun said. “Fewer than 10 percent of homeowners have subprime loans, but these mortgages are accounting for a disproportionately high share of sales in the current market. On the other hand, areas that have had sharp price cuts are seeing a turnaround in sales, which are rising very fast now in parts of California, Florida and Nevada.”
Total housing inventory at the end of August fell 7.0 percent to 4.26 million existing homes available for sale, which represents a 10.4-month supply at the current sales pace, down from a revised 10.9-month supply in July.
Single-family home sales slipped 1.4 percent to a seasonally adjusted annual rate of 4.35 million in August from an upwardly revised pace of 4.41 million in July, but are 9.6 percent below the 4.81 million-unit level a year ago. The median existing single-family home price was $201,900 in August, down 9.7 percent from August 2007.
Regionally, existing-home sales in the Midwest rose 0.9 percent in August to a pace of 1.14 million but are 12.3 percent below August 2007. The median price in the Midwest was $168,000, down 5.6 percent from a year ago.
In the South, existing-home sales increased 0.5 percent to an annual pace of 1.86 million in August, but are 15.1 percent below a year ago. The median price in the South was $176,500, which is 3.4 percent lower than August 2007.
Existing-home sales in the West fell 5.3 percent to an annual rate of 1.07 million in August, but are 4.9 percent higher than August 2007. The median price in the West was $251,600, down 23.9 percent from a year ago. “The highest concentration of foreclosures is in the West, which is weighing down the median price because many buyers are taking advantage of deeply discounted prices,” Yun said.
In the Northeast, existing-home sales dropped 6.6 percent to an annual pace of 850,000 in August, and are 15.0 percent below a year ago. The median price in the Northeast was $271,000, down 3.8 percent from August 2007. |
Declines Continued in First Half
Data through June 2008, released by Standard & Poor’s for its S&P/Case-Shiller Home Price Indices, shows continued broad based declines in the prices of existing single family homes across the United States, a trend that prevailed throughout 2007 and has continued through the first half of 2008.
The decline in the S&P/Case-Shiller U.S. National Home Price Index — which covers all nine U.S. census divisions — remained in double digits, recording a record 15.4 percent decline in the second quarter of 2008 vs. the second quarter of 2007. This is larger than the decline of 14.2 percent reported in the first quarter of the year. The 10-City and 20-City composites also set new records, with annual declines of 17.0 percent and 15.9 percent, respectively. However, it should be noted that the acceleration in decline was only moderate in June. The May numbers reported annual declines of 16.9 percent and 15.8 percent, respectively.
“While there is no national turnaround in residential real estate prices, it is possible that we are seeing some regions struggling to come back, which has resulted in some moderation in price declines at the national level,” says David M. Blitzer, chairman of the Index Committee at Standard & Poor’s.
GE Money and CertainTeed Offer New Program
GE Money announced a multiyear agreement with CertainTeed, a manufacturer of interior and exterior building products, to provide consumer financing through select contractors nationwide. The program was created in response to both CertainTeed-credentialed contractors and homeowners who have requested unsecured loan options to finance home improvement projects.
The program includes revolving credit terms and an installment loan financing option. Both options will be offered by participating contractors that have earned CertainTeed Roofing and Siding product knowledge and installation credentials.
Impact on Home Prices Not Expected to be Extreme
Rising foreclosures will not cause U.S. home values to plunge, despite widespread concerns to the contrary. That’s the conclusion of a new study, The Foreclosure-House Price Nexus: Lessons from the 2007-2008 Housing Turmoil (forthcoming as a National Bureau of Economic Research (NBER) Working Paper).
Although the authors recognize that other factors not captured by their analysis could weigh on home prices, the effects of foreclosure shocks seem to be smaller than many have feared. Even under their most extreme scenario, in which foreclosure rates would substantially exceed current forecasts, the resulting average drop in home prices between the national peak in the second quarter of 2007 and the fourth quarter of 2009 would be less than 6 percent.
The authors emphasize that house-price declines vary across states and argue that headlines pointing to extreme circumstances in a few states can be misleading about the United States as a whole. Despite increased foreclosure rates throughout the country, only 12 states are projected to see foreclosure-induced price declines of 6 percent or more through 2009, led by Nevada, Florida, California and Arizona. “This suggests that home prices are quite sticky, and that fears of a major fall in house prices, with all of its attendant negative macroeconomic consequences, typically are not warranted even in extreme foreclosure circumstances,” they write.
Part of the reason that foreclosure shocks have small effects on house prices is that these shocks tend to occur late in the housing cycle, after housing starts have declined and the supply of existing homes on the market has fallen sharply. These effects largely offset the price consequences of a supply surge caused by foreclosures.
Masco Reports Sales Dip
Masco Corp., the Taylor, Mich.-based parent company of some of the kitchen and bath industry’s leading manufacturers, saw net sales for the second quarter of 2008 decline 15 percent compared to the same quarter in 2007, the company reported.
Citing results that were adversely affected by continued softness in both new housing construction and consumer spending for home improvement products, the publicly traded Masco said that second-quarter sales totaled $2.6 billion, compared with $3.1 billion for the second quarter of 2007.
Masco’s holdings include Delta Faucet Company, Merillat, KraftMaid, Quality Cabinets, Hansgrohe and Alsons Corp., among other major companies.
Fortune Brands’ Sales Slow
Fortune Brands, the publicly traded conglomerate whose home and hardware brands include Moen faucets and cabinet brands Aristokraft, Omega, Diamond and Kitchen Craft, reported a 9 percent sales decline in the second quarter of 2008, largely a reflection of the continued downturn in housing.
Strong growth in Asian markets for some of the company’s other brands “partly offset the adverse impact of the ongoing correction in the U.S. housing market and the softening consumer environment in the U.S.,” the company said.