By Mike Colpitts
Home buyer foot traffic in new housing developments tumbled in May, indicating future home sales are expected to weaken, according to the latest Campbell-Inside Mortgage Finance survey.
The closely watched index fell from 51.6 in April to 44.8 in May demonstrating major weakness in new home sales are expected in coming months, despite 11 straight months of home sale increases over last year, according to the National Association of Realtors. The survey’s first time home buyers survey also declined for the month, falling nearly seven points for the period.
The foot traffic index for investors shopping for new home purchases also took a tumble during the month, falling to 45.3 in May from 51.7 during April. The survey is taken of more than 3,000 U.S. real estate agents monthly and is considered to be one of the most dependable housing studies in the industry.
The survey’s distressed Property Index also showed a decline during the month, declining to 46.7%. Distress home sales, however, including foreclosures and bank assisted short sales continue to make up nearly half of all home purchases, according to the survey.
“The fall in home buyer traffic indexes and other data show that this spring summer home-buying season will be significantly below last year’s,” said Thomas Popik, research director for Campbell Surveys. “First-time homebuyers have difficulty getting mortgage financing and current homeowners are often locked into properties with negative home equity. That leaves investors to take up the slack.”
Tight mortgage lending criteria is holding back many potential home buyers from entering the market, with only one in two applicants being approved for home loans. Steep credit scores and large down payments, including requirements for as much as a minimum of 20% restrain the market from recovering in many areas of the country.
First time homebuyers have accounted for about one in three home purchases in the last year, while move-up buyers have produced no net take-up in inventory. When the supply of distressed properties exceeds the demand from first-time homebuyers, investors must step into the market to buy homes, often at bargain basement prices.