By Truman Lewis
ConsumerAffairs.com
October 5, 2007
Mortgage interest rates dipped this week for the first time in four weeks but sales of new and existing homes continued to slump.
The Freddie Mac Primary Mortgage Market Survey shows the 30-year fixed-rate mortgage slipped to 6.37 percent with an average 0.5 point for the week ending October 3, 2007, from last week when it averaged 6.42 percent.
Last year at this time, the 30-year FRM averaged 6.30 percent.
The initial effects of the credit market turmoil that began in August are starting to emerge in housing statistics, said Frank Nothaft, Freddie Mac vice president and chief economist.
New home sales in August fell to the slowest pace in more than seven years and the median sales price had the largest twelve-month decline since 1970. Moreover, Augusts pending existing home sales fell to the lowest level on record, which begins in 2001, he noted.
The 15-year FRM averaged 6.03 percent this week with an average 0.5 point, down from last week when it averaged 6.095.98 percent. A year ago, the 15-year FRM averaged 5.98 percent.
Five-year Treasury-indexed hybrid adjustable-rate mortgages (ARMs) averaged 6.11 percent this week, with an average 0.5 point, down from last week when it averaged 6.15 percent. A year ago, the 5-year ARM averaged 6.00 percent.
One-year Treasury-indexed ARMs averaged 5.58 percent this week with an average 0.6 point, down from last week when it averaged 5.60 percent. At this time last year, the 1-year ARM averaged 5.46 percent.
Prior to August, the housing sector had already lost 260,000 jobs over the twelve-month period ending July 2007 while the overall economy had a net gain of 1.8 million new non-farm payroll employees. In addition, the housing market (through consumption and investment) trimmed about a percentage point off of GDP growth for the twelve-month period ending June 2007.
Existing home sales
Meanwhile, the National Association of Realtors warns that pending sales of existing homes will be dampened near-term as mortgage disruptions continue to affect the housing market.
The Pending Home Sales Index, the NARs forward-looking indicator, fell 6.5 percent to a reading of 85.5 from an upwardly revised 91.4 in July, based on contracts signed in August. It was 21.5 percent below the August 2006 index of 108.9.
Lawrence Yun, NAR senior economist, said the mortgage market impact is quantifiable.
Fewer contracts were being written because of mortgage availability issues, and a separate internal survey of our members shows more than 10 percent of sales contracts fell through at the last moment in August, primarily the result of canceled loan commitments, he said.
The volume of activity were seeing today is below sustainable market fundamentals because some creditworthy people are trying to buy homes but cant because of the credit crunch.
The impact was greater in high-cost markets that are more dependent on jumbo mortgages. In some areas, as much as 30 percent of signed contracts were falling through in August when the credit crunch problem peaked.
The problem, Yun said. has since become less severe, though jumbo loan rates are still higher than they would be under normal conditions. Therefore, sales activity in late fall will better reflect market fundamentals.
Around the country ...
• The index in the West was down 2.7 percent in August to 80.3 and was 27.1 percent below a year ago.
• In the Midwest, the index fell 2.9 percent from July to 78.1 and is 18.0 percent lower than August 2006.
• The index in the Northeast fell 8.3 percent in August to 77.3 and was 18.3 percent below a year ago.
• In the South, the index dropped 9.5 percent in August to 97.8 and was 21.3 percent below August 2006.
