Existing Home Sales Fall In September

After showing a pulse in August, the housing market lost more ground in September, according to the latest report from the National Association of Realtors.

Sales of existing homes fell 3.0 percent from August to September, but the September tally is up 11.3 percent from September 2010, when sales plummeted with the expiration of the homebuyers tax credit. The median home value also declined.

“Existing-home sales have bounced around this year, staying relatively close to the current level in most months,” said NAR chief economist Lawrence Yun. “The irony is affordability conditions have improved to historic highs and more creditworthy borrowers are trying to purchase homes, but the share of contract failures is double the level of September 2010. Even so, the volume of successful buyers is higher than a year ago and is remaining fairly stable – this speaks to an unfulfilled demand.”

Monthly lament

In what has become a monthly lament, Yun and NAR President Ron Phipps have said sales would be much higher if lenders would make more loans to creditworthy prospective buyers. Their complaint is reflected in the numbers showing contract failures were reported by 18 percent of NAR members in September, unchanged from August, They were nine percent in September 2010.

Contract failures are cancellations caused by declined mortgage applications, failures in loan underwriting from appraised values coming in below the negotiated price, or other problems including home inspections and employment losses.

“All year we’ve been discussing the fact that many creditworthy home buyers are being denied mortgages,” Phipps said. “On top of that, loan limits have been lowered, which means buyers of higher priced homes, including many in more expensive housing markets, now have to pay a higher interest rate for a jumbo mortgage than buyers who can qualify for a conventional loan. We need to remove the roadblocks to a housing recovery – not place more obstacles in the way of financially qualified buyers.”

Lenders' concerns

Lenders, of course, are afraid that if they finance 90 percent or more of a home purchase, the value of the home could fall further, potentially exposing them to an underwater situation. But Realtors respond that by maintaining extremely tight lending standards, it results in fewer buyers and thus, pushes home values lower. Yun has said on a number of occasions that if lending standards returned to those of the pre-bubble period, sales would increase by 15 percent.

With mortgage money in short supply, investors have made up a large part of the buying market in recent months. That was the case again in September, however the NAR report shows investors purchased 19 percent of homes in September, down from 22 percent in August.

First-time buyers, meanwhile, accounted for 32 percent of transactions in September, unchanged from August; they were also 32 percent in September 2010.

The national median existing-home price for all housing types was $165,400 in September, down 3.5 percent from September 2010. Distressed homes – foreclosures and short sales typically sold at deep discounts – accounted for 30 percent of sales in September, down from 31 percent in August and 35 percent in September 2010.