Home Sales Drop In July

Sales of existing homes fell in July by 3.5 percent as would-be buyers, drawn by low prices and interest rates, found it harder to qualify for a mortgage and some properties just wouldn't appraise at the agreed-upon sale price.

In its monthly report, the National Association of Realtors (NAR) pointed out that July's sales were up 21 percent from July 2010. However, it's worth noting that at the time, the homebuyers' tax credit had just expired, which made June 2010's number higher than usual and July's lower.

The report is just the latest troubling news over the last month suggesting the economic recovery is stalling. But Lawrence Yun, NAR chief economist, believes there are a lot of consumers who would have purchased a home last month if they could have obtained a mortgage.

Great time to buy, but...

“Affordability conditions this year have been the most favorable on record dating back to 1970, but many buyers are being held back because banks are offering financing to only the most highly qualified borrowers, ignoring a large share of otherwise creditworthy buyers,” Yun said. “Those potential buyers represent the difference between an uneven recovery and a much more robust housing market that could stimulate additional economic activity and create jobs.”

Interest rates were indeed enticing, for this who could qualify. According to Freddie Mac, the national average commitment rate for a 30-year, conventional, fixed-rate mortgage was 4.55 percent in July, up from 4.51 percent in June; the rate was 4.56 percent in July 2010. Last week, Freddie Mac reported the 30-year fixed rate dropped to 4.32 percent. Rates have fallen again this month.

Contract failures continue to be a big drag on completed sales. These cancellations caused largely by declined mortgage applications or failures in loan underwriting from appraised values coming in below the negotiated price, were unchanged in July, reported by 16 percent of NAR members.

Problem appraisals

In addition, nine percent of Realtors report a contract was delayed in the past three months due to low appraisals, and another 13 percent said a contract was renegotiated to a lower sales price because an appraisal was below the initially agreed price.

That's unacceptable, says NAR President Ron Phipps.

“For both mortgage credit and home appraisals, there’s been a parallel pendulum swing from very loose standards which led to the housing boom, to unnecessarily restrictive practices as an overreaction to the housing correction,” he said.

Banks may be appraisal hawks because of declining home values, and those values declined again in July. The national median existing-home price for all housing types was $174,000 in July, down 4.4 percent from July 2010. Distressed homes– foreclosures and short sales typically sold at deep discounts – accounted for 29 percent of sales in July, compared with 30 percent in June and 32 percent in July 2010.

Once again, nearly one third of all July sales were completed without a mortgage. All-cash sales accounted for 29 percent of transactions in July, unchanged from June. Investors account for the bulk of cash purchases.