By Kevin Chiu
Hammered by lagging consumer confidence and a tough mortgage lending environment, home sales slid to a 50 year low this summer as the U.S. economy faces the harshest unemployment picture since the Great Depression.
Buyers bought fewer new homes from March through August, typically the hottest part of the year for home sales, than in any stretch since the Commerce Department has been keeping records. The figures underscore how tough the housing market is these days in the face of years of abusive lending by banks and mortgage companies.
However, home re-sales rose in August, rising 7.7% to a seasonally adjusted annual rate of 5.03 million units, according to the National Association of Realtors. The jump in sales is a positive sign for the market, which is otherwise bruised and battered by the economy.
The rate of used home sales is also higher than a year ago when the federal tax credit for buyers had just wrapped up, soaring by an annualized rate of 18.6% on 4.24 million units a year ago.
While home sales may be getting help from lower home prices and all-time record low mortgage rates, home prices in the majority of the country are still declining. A wealth of issues weigh on the market, including restrictive mortgage underwriting and tougher appraisal requirements adopted through Dodd-Frank financial reform.
Higher than usual contract cancellations are being blamed to a large degree on the elevated appraisal standards, with 18% of NAR members reporting a sales contract cancellation during August. Lower home values in a large percentage of transactions have brought an end to many sales this year as a result of lower home price values in appraisals.
However, foot traffic at new home developments in many regions of the U.S. is rising, usually a first sign that the bottom of the market is near. In Napa, California the Oak Leaf Ranch executive single family home development is seeing greater interest from prospective buyers in the $500,000 price range.
“Oak Leaf Ranch provides an opportunity to be close to everything in Napa and still feel like you’re living in the country,” said DeNova Homes vice president Lori Sanson. “This neighborhood represents everything that makes Napa one of the world’s most desirable places to live.”
The firm is offering rare mortgage financing on some homes they are marketing, with rates as low as 3.95% on a 30-year fixed rate mortgage to attract buyers to their affluent development.