Thursday, April 8, 2010

BUYING & SELLING: Range of Incentives Aren't Attracting Home Buyers

Greater price affordability, record-low interest rates and historic levels of government-backed home-buying assistance should mean boom-time-level home sales.

Unfortunately, too many consumers, who might otherwise consider buying a home, face adverse conditions that are undermining their confidence in the American Dream.

Employment uncertainty, tight mortgage underwriting standards, deep-pocket investors, the inability to sell a home and move up, even winter weather have conspired to cut into home buying hopes this year.

The latest U.S. Census Bureau data reveal that sales of new homes fell for the fourth consecutive month in February, to a seasonally adjusted annual level of 308,000 sales. That's a year-over-year decline of 13 percent and the lowest level ever for the bureau's monthly New Residential Sales report.

Footnotes included with the data underscore just how significant the home sales downturn has become: "Changes in seasonally adjusted statistics often show irregular movement. It takes four months to establish a trend for new houses sold."

The trend of existing home sales is only slightly better.

February sales of existing homes were up 7 percent from last year, and from January to February they declined only 0.6 percent -- less than economists expected. However, February marked the third consecutive month of falling home sales, according to the National Association of Realtors (NAR).

Falling home sales typically mean home prices are off, too.

The median price of all types of homes nationwide was $165,100 in February, almost 30 percent off the peak reached in July 2006, according to NAR. In some locations, home prices have rolled back to 2000 levels, slashed by up to 50 percent.

"Although sales have been higher than year-ago levels, for eight straight months, and home prices are much more stable compared to the past few years, the housing recovery is fragile at the moment," said NAR's chief economist, Lawrence Yun.

The New 'NINJA' Loan

Blame the economy. Today, you can't buy a home if you don't have a job.

According to the U.S. Bureau of Labor Statistics, the national unemployment rate ended 2009 at 10 percent and by February had improved only to 9.7 percent. In major housing areas it remains in double digits -- 11 percent in San Diego and San Francisco; about 12 percent in Chicago, Los Angeles, Washington, D.C., and the state of Florida; 12.4 percent in Silicon Valley; 13.8 in Las Vegas; and 15.6 percent in Detroit.

During boom times, unemployment simply wasn't enough to automatically generate a mortgage application rejection. So-called NINJA loans (No Income, No Job or Assets) were all the rage.

Now those NINJAs are No Income, No Job or Approval.

Even career workers are finding it tough to get approved due to stiffer underwriting requirements (perfect credit reports; higher credit scores; more assets; and documented long-term job security, among others) and changing rules.

Low down payment loans, for example, which took up much of the slack from the devastated sub-prime market, are now tougher to land. Recent changes in FHA loans include higher mortgage insurance costs, higher credit score requirements and a 50 percent smaller closing cost assist from sellers.

"Constantly changing financing rules are resulting in a much higher than normal failure rate. If the financing rules were reasonable and stable, the volume of closings would be there overnight," said Richard Calhoun, broker/owner of Creekside Realty in San Jose, Calif.

Investors Back in Town

In a growing number of cases when buyers do manage to qualify for financing, investors swoop in and buy homes out from under buyers with just a down payment.

NAR said that while first-time buyers purchased 42 percent of homes in February, up from 40 percent in January, investors accounted for 19 percent of transactions in February, up from 17 percent in January. NAR also said 25 percent of sales were cash deals, another indication investors are snatching up low-priced homes and distressed properties.

"We are even seeing investors coming back into the market to flip properties that they acquire from the foreclosure sellers. In some cases the properties are back on the market in a month's time," said Kim DiBenedetto, a real estate agent with Coldwell Banker Del Monte Realty in the popular resort town of Carmel, Calif.

Sellers Waiting, Too

Sellers also are sitting it out. Just as the federal tax credit is useless for jobless consumers or those fearing job loss, a tax credit also can't stimulate home owners to sell and move up if they are living with a mortgage that's under water.

First American Core Logic recently reported some 11.3 million home owners have a mortgage larger than their home is worth.

A home priced too high to make up the difference likely won't sell. A home with an underwater mortgage sold at market value will leave a balance to pay off, moving costs, real estate commission and other costs a tax credit simply won't cover.

"If you bought a house with little or no money down a few years back, well really, you have been renting. Your monthly payment was deductible (at tax time), but you have not built any equity, nor have you seen any appreciation," says Dane Hahn, a real estate broker who works both the New Hampshire and Florida markets from Tarpon Coast Realty in Sarasota, Fla.

Stop Snowing!

Blame it on global warming, climate change or just a lousy winter that won't quit, but blizzards, rainstorms, flooding, weather-induced blackouts and all kinds of other inclement weather conditions have put a damper on the desire and ability to buy and sell homes.

"Home sales in winter are always known to be tough," said Greg Hanson, senior vice president and general manager at, an online real estate listing and information portal.

"But the recent severe storms may have brought them down to a whole new low."

Broderick Perkins, April 1, 2010

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