“The National Association of Realtors’ index for pending sales of existing homes decreased at a seasonally adjusted annual rate of 12.2% to 89.9 in July from June’s 102.4, the industry group said Wednesday. The NAR index, based on signed contracts for previously owned homes, was 16.1% below the level of July 2006.”
“In a news release, the NAR said the index shows existing-home sales are likely to decline in coming months as mortgage disruptions work through the housing market. “It’s difficult to fully account for mortgage disruptions in the index, and our members are telling us some sales contracts aren’t closing because mortgage commitments have been falling through at the last moment,” NAR senior economist Lawrence Yun said.”
“These temporary problems are primarily with jumbo loans, and there are continuing issues for subprime borrowers, but there are no serious problems for the majority of buyers who qualify for conventional financing or FHA-insured loans,” Mr. Yun said. “Some consumer concerns remain, but since mid-August the market has been stabilizing somewhat.”
“By region, the Northeast decreased 12.2% in July from June; it fell 10.0% from a year earlier. The Midwest decreased 13.1% in July from June; it fell 15.8% from last year. The South dropped 6.6% in July from June; it tumbled 15.2% since July 2006. The West decreased 20.8% in July from June; it fell 21.8% from a year earlier.”
∙ Pending-Home Sales Decline 12% [WSJ]
∙ July pending home sales index falls 12.2% [Marketwatch]
It should be noted that these figures are for JULY, before the mortgage crisis was apparent to most people. In other words, these numbers reflect what the “normal” market was doing pre-disruption.
in the end, the market simply ran out of steam. housing can only be so expensive before people really truly are priced out. at that point, no sales can happen until either the price drops or until incomes rise
we won’t know what happened due to the August secondary market collapse until September/October.
Agree with ex-SFer except that the quantified effects of the mortgage meltdown might come even a bit later. At least some buyers who are buying now locked in before the crisis. But those lock-in periods are just about over. So it is only now that we are really seeing the full effect of the meltdown — buyers who could get a loan two months ago but now cannot get anything at any rate. Right now, we can get some feel for things, but the big picture of the current situation will be much more clear with the data releases in a couple more months.
This looks like the 1st analytical proof that the market is imploding. a 21% decrease in July is just amazing as it is usually one of the busiest buying months.
I don’t really see any imploding or melt down. My buyers are just kind of hanging around waiting. My sellers are not slashing and running.
I would really like to know what FunYun means by ‘temporary’.
Are we really going to start seeing 100% financed no doc stated income I/O ARM jumbo mortgages again in a few weeks, months, years?
And, as pointed out above, these are July numbers. The major round of tightening surrounding jumbo’s didn’t occur until August. If we are setting new records now, how are things likely to look like a few months from now (just in time for the holiday shopping season)?
And, again, the big wave of ARM resets is still out there. Will these ‘temporary’ problems with jumbo’s be resolved in time for Bay Area ARM holders? If not, will those with jumbo ARM’s be able to afford the jump in monthly payments? Will they be able to refinance given the new tighter standards of fully documenting income and financial resources? If they can’t refinance, will they be able to sell for a price that covers what they owe the bank?
While I know there will be a response about how the seemingly endless financial resources of Bay Area residents will save the local housing market. My perspective is that it appears much of those financial resources are already tied up in friends and coworkers homes, either through remodels, the purchase of larger homes, HELOCs, or vacation properties.
Many of the recent buyers are already leveraged to the hilt. If things go bad, even for a short period, they have very little cushion to break their fall.
Remember, asset prices are set at the margins. Just like it didn’t take a large number of buyers willing to pay more then the next guy to drive prices up, it doesn’t take a large number of sellers willing to cut prices to drive them down.
regardless, the next 3-6 months are going to be very interesting.
It’s comforting to know that the great bulk of the mortgage market is back to functioning normally.
So the flippers and liars and no money downers can’t get loans. Should the rest of the country care?
Oh yes, one more group, the rich buying the highest-end houses using Jumbo loans. Does anyone need to worry about them? From the perspective of the rest of the country, there are more important issues to focus on than rich people buying overpriced houses.
Which is how one can interpret the most recent pleas by congressmen for the mortgage lenders to do something. Implicit in that plea is an admission that congress isn’t going to do much, so it’s really up to investors, who are spread so far and wide and are such a diverse group that they aren’t going to do anything either.
Non-rumor alert: Ameriquest, once the largest subprime lender in the country, folded over the weekend, originating over $20 Billion in loans last year. American Home Mortgage also shut down over the weekend with at least $800M of approved loans in the pipeline!
Poof!
I agree too that another month or two of data should really clarify the picture – but it seems that a drastic drop in transaction volume is underway. If you are a potential buyer without any pressing time constraints or mortgage lock issues, why would you buy now?
Check out the Marin Heat Index (www.marinheatindex.com). It’s a relative supply-demand indictor and valuable for its historical perspective. It hit an all-time low this week at .39.
[Editor’s Note: Additional background/perspective on the Marin Heat Index.]
Since I am on the reset thread, again …
I would also like to point out that many of the ARM resets use the LIBOR (London Interbank Offered) rate, which is currently rising sharply, and not the US FED rates to determine the new payment amount.
So a cut by the FED does not directly help out ARM holders with rate changes pegged to the LIBOR. Although one can speculate that a cutting of the FED rate would trickle down and help out the LIBOR.
In all honesty, has this decline in home sales impacted the prime areas of San Francisco or the Peninsula in any way at all?
Anecdotally, I haven’t seen any evidence of it in either listing numbers or prices if it has …
What’s more, any significant relaxation of lending standards over the next few months would be certain to re-ignite the boom given massively bullish homeowner expectations overall (present company excluded).
@BadlyDrawnBear (or anyone else) — Why are ARMs tied to LIBOR rather than a fed rate? I’ll guess there are more-liquid/versatile hedging instruments against LIBOR (but I have no idea).
thanks in advance!
Jimbob – the massively bullish homeowner expectations are changing at long last. The boom is not re-igniting. The bubble was a mass psychosis. We’re regaining our sanity. Housing prices should be (and will be once again) a function of economic fundamentals. And prices are coming down – just keep your eyes open.
“Why are ARMs tied to LIBOR rather than a fed rate?”
A good question. a few guesses:
1> just “because”. sometimes things happen in finance only because that’s the way it originally occurred. (for example, there is no reason except convention why S&P rating scale goes AAA, then down to BBB, whereas Moody’s goes Aaa down to Baa)
2> the banks get a better offer from LIBOR than they would using another indexer (such as the Fed Funds Rate or 10 year treasury)
LIBOR is a US dollar demoninated rate… so the banks are not taking on currency risk by using LIBOR.
Actually, loans are indexed to LIBOR because that’s what banks fund themselves with, so by indexing to LIBOR they maintain a hedge between sources and uses of capital and easily bank the spread without having to worry about imperfect correlations between benchmark rates (i.e. imagine if you borrowed in LIBOR and lent out at Fed Funds. You’re spread would only be locked to the extent the two rates moved in unison, otherwise you take on risk).
LIBOR is offered in several currencies, the dollar being one.
I’m confused Dude.
the banks can fund themselves with the Fed Funds Rate as well. They don’t have to use LIBOR.
FFR is set by the US Fed
LIBOR is set by the BOE.
You are correct, LIBOR is offered in several currencies, but in this respect it’s dollar denominated (so that American Lenders can avoid currency risk). I tried to simplify which is why I wrote that LIBOR is dollar denominated, because in terms of American Home Mortgage Lending it is dollar denominated.
so again, why do they sometimes use LIBOR, sometimes FFR or sometimes 10 year treasury?
To my knowledge, it’s a historical tendency left over from the Pax Brittanica. LIBOR, being the London Interbank Offered Rate, is not set by the BOE but by market participants (other banks). Historically, when banks are under- or over-reserved, it’s been more efficient (cheaper) for them to obtain funds from one another in the LIBOR market than going to the Fed or BOE. This is something established centuries ago, when London was still the financial centrum of the world.
All banks participate in the LIBOR market, making it more liquid than Fed Funds or Treasuries, where the supply is constrained by the Fed. Additionally, most large banks are rated AA or better, allowing them to borrow at LIBOR less a spread. So this is a key benchmark for them.
oops… duh… clearly LIBOR isn’t set by the BOE (bashful smile)
since you guys are chatting up the LIBOR, check this out:
Why Libor Defies Gravity
Divergence of a Key Global Rate Points to Strain
http://online.wsj.com/article/SB118891774435316875.html
james, dude, and ex-sfer: thanks again! This info was useful.