DESPITE POSITIVE SIGNALS, Falling Prices - Tighter Lender Requirements Keep Many Buyers Away from the Closing Table!
UNSOLD INVENTORY DROPS, BUT FEWER BUYERS QUALIFY HERE IN CHICAGO, OTHER METRO AREAS!
It's true - median home prices are falling!
Since June, 2007, Chicago Median Home Prices have fallen 9.5%. The median decline nationally - 15.9%.
But the PACE of the monthly price declines has been slowing, and that has gotten a few experts thinking a bit more optimistically. Karl Case, one of two people who designed the S & P/Case-Shiller Index of Home Prices, a key barometer for watching home prices feels the most recent three-month trend might suggest that the worst of the housing wreck has occurred.
Others contend the bottom of the housing slump may be a long way off. Nationally, the inventory of unsold homes, often referred to as the Absorption Rate, is over 11 months - near double the conventionally-accepted market-balanced level. Here in Chicago, in the North and Northwest Side Neighborhoods we frequently serve, the inventory level remains stubbornly high at over 28 months! (See our recent Chicago IL Stats Pack Posting to track Inventory Level in these Chicago Neighborhoods over the last few months.)
How are homes sold in a high-unsold-inventory market? You must LOWER THEIR PRICES, to clear out the inventory, Less inventory means less price completion among houses remaining on the market. Prices will stabilize; that's basic economics at work!
In a perfect world, stabilization would occur quickly. However, there is a catch!
As we have all heard, banks are having trouble collecting on mortgages they made a couple of years ago. To right their own ship, they have tightened issuance standards for new loans, so they don't make their own financial problems even worse.
Hence, the problem! The comparative shortage of loans might hinder housing market recovery in the coming months.
Lawrence Yun, Chief Economist for the National Association of Realtors, found weakening sales numbers in areas of the country that had been resilient through the housing slump, and not been affected as greatly by speculation and rapid price appreciation a couple of years ago. The reason could be that people aren't receiving the loans they need to buy homes, he said.
Yun sees Chicago as one affected market area. Another was Dallas TX. "Texas is strong, jobs are strong, but people just can't get a mortgage," he said. Although the housing problems began because many Americans were given loans they couldn't afford, and because speculation was rampant in areas such as California and Florida, the financial system has reacted in a way that is punishing areas that have no inherent reason for housing problems.
According to Vince Farrell, Chief Investment Officer of The Soleil Group in New York City, "Credit availability is needed before housing can recover." "An unprecedented tightening of mortgage loan standards and rising mortgage yields amid a weakening economy threaten to extend housing's slump," said Moody's Economist John Lonski.
As an indication of near-term trends, economists look to Mortgage Bankers Association Index of Mortgage Applications. During the four weeks that ended August 22nd, the index suggests a 29.1 percent decline in mortgage applications since August, 2007. That's the largest slide of the housing recession, following a drop of 22.5% in July and 20.7% last June.
"Mounting worry over the near-term supply of mortgage credit diminishes the favorable implications of July's monthly increases for unit sales of existing homes," said Lonski.
So despite the increase in home sales in July over last June, Lonski and others are troubled by what the credit crunch is doing to availability of residential mortgages. With banks and national loan guarantors and investors Freddie Mac and Fannie Mae perhaps a bit overly cautious in making mortgages loans available, many individuals can't obtain home mortgages.
One indicator of this current availability-of-funds issue can be found by comparing 30-year mortgage rates to the yields on U.S. Treasury Bills. Typically, the two interest rates are very close. Today, however, the rates on 30-year Mortgages were about 6.5% during the past four weeks, compared to 3.9% for 10-year T-Bills. In 2006, during the height of the housing market in Chicago and other cities, the gap between the two was a smaller 1.5 percent.
This may be one reason Feds Funds Rate reductions often have little effect on today's Home Mortgage Interest Rates.
See today's Chicago Tribune Real Estate Section, and Gail MarksJarvis's story, for more information.
DEAN MOSS & DEAN'S TEAM CHICAGO
