Existing sales, which are completed transactions that include single family, town homes, condominiums and co-ops, dropped 0.8% to a seasonally adjusted annual rate of 5.05 million in April from a downwardly revised 5.09 million in March, and are now 12.9% below April 2010.
But this needs to be seen against a surge in sales surged in April and May of 2010 in response to the home buyer tax credit. However, Lawrence Yun, NAR chief economist believes that the market in underperforming mainly due to alack of lending.
‘Given the great affordability conditions, job creation and pent up demand, home sales should be stronger. Although existing home sales are expected to trend up unevenly through next year, unnecessarily tight credit is continuing to restrain the market, along with a steady level of low appraisals that result in contract cancellations,’ he explained.
A parallel NAR practitioner survey shows 11% of Real estate agents report a contract was cancelled in April from an appraisal coming in below the price negotiated between a buyer and seller, Some 10% had a contract delayed and 14% said a contract was renegotiated to a lower sales price as a result of a low appraisal.
‘Although sales are clearly up from the cyclical lows of last summer, home sales are being held back 15 to 20% due to the very restrictive loan underwriting standards,’ Yun said.
NAR president Ron Phipps said that the lending community needs to return to sensible standards. ‘We want to ensure that qualified buyers will be able to own their property on a sustained basis from a sound credit evaluation, but banks needn’t be so stingy as to only lend to those with the highest credit scores,’ he said.
‘Very high shares of cash purchases, and high credit score requirements, have led to historically low default rates among home buyers over the past two years. This trend implies a gulf is opening between those who can and cannot have access to the American dream of home ownership. At the same time, existing guidelines from Freddie Mac and Fannie Mae must be fully implemented so all appraisals are done by valuators with local expertise,’ he explained.
The national median price for all housing types was $163,700 in April, which is 5% below April 2010. Distressed homes, typically sold at a discount of about 20%, accounted for 37% of sales in April, down from 40% in March.
‘Home values, despite month to month volatility, have been remarkably stable in the range of $160,000 to $170,000 for the past three years. Stable home prices in turn will steadily lower loan default rates, including strategic defaults,’ Yun pointed out.
Total housing inventory at the end of April increased 9.9% to 3.87 million existing homes available for sale, which represents a 9.2 month supply at the current sales pace, up from an 8.3 month supply in March.
First time buyers purchased 36% of homes in April, up from 33% in March Investors slipped to 20% in April from 22% of purchase activity in March. The balance of sales, 44%, was to repeat buyers.
Phipps added that proposals and regulations are being considered in Washington that could further constrain the housing market. ‘One of the most damaging proposals would effectively raise down payment requirements to 20% which would slam the brakes on the housing market. ‘What we need to do is simply return to the sound standards that were in place before the introduction of risky mortgage products,’ he said.
‘Our data shows only one out of five first time buyers needing a mortgage could afford a 20% down payment, and without first time buyers the trade up market would stall with very negative consequences for housing and the overall economy,’ he explained.
