From Marketwatch this morning. Hood River is following this trend, and I sense a bit of a bottom…Thankfully….But their points are exactly correct….
WASHINGTON (MarketWatch) — People weren’t buying many houses even when they could get a mortgage. And now that it’s become impossible for some buyers to get a loan, it’s likely sales will fall further.
The recovery in housing seems to be getting further away, not closer, with each month’s grim data.
The latest report from the National Association of Realtors shows that the number of homes going under contract for sale in July plunged by 12% to the lowest level in six years. See full story.
And, given that some of those people who signed a sales contract won’t be able to get a mortgage on the terms they can afford, the number of completed sales in August, September and October will probably plunge as well.
Housing now has three strikes against it:
The supply of homes is much, much too high. Builders are cutting back on new construction, but there are still lots of new homes hitting the market. Inventories of existing homes rose to a 16-year high in July, a triumph of hope over experience.
Prices are too high. Sellers haven’t figured out yet that the price their neighbor got last year is meaningless. The bubble in home prices was fed primarily by lax underwriting standards for mortgages. Under the new regime, buyers will be approved for loans that they can repay, which means middle-class incomes will no longer support $700,000 mortgages. If you want to sell your house for that, you’ll have to find a rich person willing to live in your three-bedroom ranch.
Getting a mortgage isn’t easy. The credit crunch on Wall Street means that funding for mortgages has dried up. Dozens of lenders have shuttered their doors and stopped lending to subprime or Alt-A buyers. Adjustable-rate mortgages are more expensive than fixed rates. Many borrowers are turning to government programs.
Eventually, of course, the housing market will settle down. Supply and demand will normalize as prices adjust to the new reality. The credit problems will resolve themselves, as investors turn to more trustworthy counterparties and as stricter lending standards become the rule rather than the exception.
In the meantime, prepare for more horrible news. On Thursday, for instance, the mortgage bankers will report on the number of mortgage defaults and foreclosures…