A Realtor's Plea To Banks: Please Make Loans

Another month, another anemic home sales report from the National Association of Realtors.

In March, sales of existing homes rose 3.7 percent from February, but were down 6.3 percent from March 2010. And March 2010 sales were below those of March 2009, when the home buyer's tax credit was in place.

But one area where sales appear to be brisk is in the “distressed property” segment, where foreclosures and short sales have driven prices down, drawing eager bargain hunters who are actually bidding up the prices in some cases.

Bottom feeding

Distressed homes – typically sold at discounts in the vicinity of 20 percent – accounted for a 40 percent market share in March, up from 39 percent in February and 35 percent in March 2010.

Despite historically-low interest rates, more homes are being purchased with cash. All-cash sales were at a record market share of 35 percent in March, up from 33 percent in February; they were 27 percent in March 2010. Investors accounted for 22 percent of sales activity in March, up from 19 percent in February; they were 19 percent in March 2010. The balance of sales were to repeat buyers.

Lawrence Yun, NAR's chief economist, thinks the modest increase in home sales would gather momentum if more people who want to buy houses could get loans.

Where are the loans?

“Although home sales are coming back without a federal stimulus, sales would be notably stronger if mortgage lending would return to the normal, safe standards that were in place a decade ago – before the loose lending practices that created the unprecedented boom and bust cycle,” Yun said.

Part of the problem, he says, are requirements for 20 percent or more as a down payment. He says low-down payment programs have been shown to be successful.

“Given that FHA and VA government-backed loan programs turned a modest profit over to the U.S. Treasury last year, and have never required a taxpayer bailout, we believe low-down payment loans should continue to be available for those consumers who have demonstrated financial responsibility and are willing to stay well within their budget. Raising the down payment requirement would unnecessarily deny credit to many worthy middle-class families and veterans,” Yun said.

Banks have other priorities

While banks may still be skittish about risks involved in real estate – after all, the median home value is still going down – it also has other options for making money. For example, banks can borrow money from the Federal Reserve for next to nothing and buy bonds. Good for bank shareholders, but it doesn't do much for the housing market.

Still, Yun is hopeful.

“With rising jobs and excellent affordability conditions, we project moderate improvements into 2012, but not every month will show a gain – primarily because some buyers are finding it too difficult to obtain a mortgage. For those fortunate enough to qualify for financing, monthly mortgage payments as a percent of income have been at record lows,” he said.

NAR’s housing affordability index shows the typical monthly mortgage principal and interest payment for the purchase of a median-priced existing home is only 13 percent of gross household income, the lowest since records began in 1970.