RepossessedHomeSales.com

Home Sales Sink Rates Inventory Rise

Written by Lois D. Fernandes    Wednesday, 29 April 2009

Rising interest rates are making it increasingly hard to buy a home and are putting the brakes on the nation's most expensive housing markets. The latest evidence came Tuesday from the National Association of Realtors, which said sales of existing homes fell 6% from January to May. The drop was worse for single-family homes, whose sales posted their steepest drop in 11 years. The number of homes for sale, meantime, rose sharply last month, a sign of slackening demand. "The one thing that's changing my forecast is the Federal Reserve," said David Lereah, the NAR's chief economist, who said he now expects home sales to fall as much as 8% this year, instead of the 5% drop he projected in January. "The market is expecting several more interest rate hikes from the Fed, and that could harm some of our nation's cooling housing markets." The Fed is expected to raise its target for short-term rates later this week for the 17th time in two years. Previous increases are already shutting out some buyers. Last week, the average 30-year, fixed-rate loan was at 6.7%, a four-year high, up from 5.57% a year ago. Someone who borrowed the full $230,000 for a median-priced home would have monthly principal and interest payments of $1,484 vs. $1,316 a year ago. Rising rates are even more dangerous for people with adjustable rate mortgages that will later reset to much higher rates. In San Diego, where the median home price is $607,000, 74% of buyers last year took out loans that let them pay only the interest or even less, according to LoanPerformance. Thirteen major metro areas face a 50% or greater chance of declining prices in the next two years, according to PMI Mortgage Insurance, which released its latest market risk index on Tuesday. Still, most experts see no sudden collapse of prices. "We're seeing an orderly slowdown," says Mark Milner of PMI. In May, the median price of a single family home hit $229,700, up 6.4% from a year ago. Existing-home sales fell 1.2% from April. There's now a 6 1/2-month supply, a sign of a balanced market. Rising prices are scaring away investors in resort and second-home areas. The number of condos for sale in Las Vegas is up 67% from last year. The lack of investors is "the whole story of the (Las Vegas) market," says Dennis Smith of Home Builders Research. "Same in California and Phoenix." Some areas that never saw frenzied buying still report strong markets. Texas, North Carolina and New Mexico are seeing double-digit gains in home sales. Still, the confidence index of the nation's home builders has fallen to its lowest level since 1995. Monday, Lennar became the fifth home builder in recent weeks to warn investors of lower orders and more cancellations.

Last Updated ( Wednesday, 29 April 2009 )