Two seemingly mundane and unrelated news items were reported over the last couple of days without much attention, but could be a warning that housing activity is slowing. First are reports of disappointing home sales during February, while the other is about mortgage principal write downs.
The National Association of Realtors® (realtor.org) reported in a March 21st statement that February home sales plunged 7.1% from January’s sales; however, February sales were still 2.2% higher than the same time last year. The disappointing sales were recorded in all four national regions; and were likely due to a combination of extremely low inventory and increasing home prices.
NAR chief economist Lawrence Yun stated in the release that although the northeast blizzard may have had some impact, vapid sales were more likely due to the lack of supply and affordability. He stated, “…Finding the right property at an affordable price is burdening many potential buyers.” Yun pointed out that although there are gains in job growth, NAR’s latest quarterly Home Survey indicated that fewer respondents believed the economy was improving, while a lower number of renters stated it’s a good time to buy a home. Remaining optimistic, Yun qualified February’s data saying home buyer demand is still high, however, “…home prices and rents outpacing wages and anxiety about the health of the economy are holding back a segment of would-be buyers.”
NAR also reported that February’s median existing home price for all housing types was up 4.4% year-over-year; while exiting inventory is 1.1% lower compared to the same time last year, which leaves unsold inventory at a 4.4 month supply.
However, a housing slowdown may not be noticeable in my area. Statistics reported by the Greater Capital Area Association of Realtors® (gcaar.com) indicated that settlements during February for Montgomery County single family homes are actually up 19.3% and homes under contract increased 12.4% compared to the same time last year. However, February’s new inventory for Montgomery County single family homes decreased 3.4% year-over-year.
Although continued increases in home prices is good news for homeowners; it is easy to see that affordability is an impediment to home ownership for many would be home buyers. Additionally, possibly keeping home sales inventory down are the number of homeowners who continue to feel that they cannot sell because they still owe more than the value of the home. Consider that Realtytrac (realtytrac.com) reported that there were 6.4 million properties that were seriously underwater at the end of 2015; which represents about 11.5% of all homes with a mortgage.
In an effort to offer relief to underwater homeowners, the Federal Housing Finance Agency (conservator of Fannie Mae and Freddie Mac) approved a plan to reduce mortgage balances on a “large scale.” Joe Light reported for the Wall Street Journal (Fannie, Freddie to Cut Mortgage Balances for Thousands of Homeowners; wsj.com; March 21, 2016) that as many as 50,000 underwater homeowners could see their mortgage principal reduced by Fannie and Freddie.
Although the number of assisted homeowners seems small in comparison to the number of underwater properties reported by Realtytrac, and is not expected to impact the housing market; it is a milestone nonetheless. Mortgage principal reductions has been controversial, and has been bandied about by industry experts and regulators since the foreclosure crisis began in 2007. Light reported that the previous FHFA director, Edward DeMarco, was reluctant to support such a program because of the cost to taxpayers. However, current FHFA director, Melvin Watt, has taken a “measured approach” to the plan.
Copyright © Dan Krell
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