The National Association of Realtors released its July report on housing on Thursday. Considering it’s back-to-school time, let’s take a quiz: The most interesting statistic in the report is …
A) Home sales jumped 21 percent from July 2010;
B) Home sales dropped 3.5 percent from from last month; or
C) 16 percent of sales contracts failed because the buyers could not secure a mortgage.
If you picked “C,” you’re right!
(GALLERY: Top 10 Most Spectacular Beach Homes)
The year-over-year comparison (A) is distorted because in the spring last year buyers rushed in to get the first-time homebuyer tax credit, so summer 2010 was a pretty depleted pool of buyers.
The month-over-month decline (B) is worrisome because it means that transactions are now running at a seasonally adjusted pace of 4.67 million for the year. As I’ve written before, any pace below 5 million is sub-optimal and will keep the housing market from leading any kind of economic recovery. Plus, the median forecast of economists surveyed by Bloomberg News had actually called for an increase in sales.
But by far the most disturbing problem is (C). One out of every seven contracts is going down due to problems that buyers are having getting mortgages. To look at it another way, there are tens of thousands of people who are trying to buy homes who can’t because they’re denied a loan.
Now it’s possible that the system is doing its job, and that those denied buyers shouldn’t get loans. Maybe they’re poor credit risks, or their employment isn’t stable, or they’re trying to overpay for their target properties.
But I doubt that’s the only thing going on because the percentage of denieds spiked so suddenly, from 4 percent in May to 16 percent in June. (Note that “denied buyers” are self-reported by NAR membership, which consists of about 1.1 million real estate agents nationwide.) While July turndowns are “merely” steady from June, it does look to me like that quadrupling earlier this summer reflects that a credit spigot was shut off very, very suddenly.
Cash purchasers, on the other hand, haven’t fled the market. Those with means, it appears, still believe in housing, perhaps lured by the slump’s relative bargain pricing. (Or they’re fearful of the daily rollercoaster of the global equities markets; the market was down 4 percent from when I finished my pancakes Wednesday morning.) Some 29 percent of July sales were all-cash transactions; NAR reports that “the bulk” of these are investors.
Have these buyers vacuumed up all the inventory yet? Well, supply did fall, dropping 1.7 percent to 3.65 million available homes. However, the decline in sales pace means that smaller inventory now represents a 9.4-month supply, up from 9.2 months in June.
Anything over a 6-month supply is considered a buyer’s market. Got any cash?