NAR Points to Changes Required to Re-Emerge

According to NAR:

The Pending Home Sales Index, based on contracts signed in May, rose in the West and Northeast but fell in the Midwest and South.  The national index stood at 97.7 in May, down 3.5% from a downwardly revised April index of 101.2, and is 13.3% lower than May 2006 when the reading was 112.7.  In April, the index was 10.4% lower than a year earlier.

Lawrence Yun, NAR senior economist, stressed that housing activity continues to be impacted by tighter lending criteria and a lack of buyer confidence.  "Some transactions are being postponed from mortgage market disruptions," he said.  "But better supervised lending will put housing in a fundamentally healthier state over the long term.

"Mortgage purchase applications are trending up, with some of the rise due to buyers reapplying for alternatives to subprime financing.   Nonetheless, home sales should stay close to present levels in the months ahead given an accumulating pent-up demand," Yun said.

The pent-up demand results from slow household formation, which is significantly below levels that would be expected in a period of job creation and economic growth.  "As consumer confidence improves, home sales will rise," he said.

The key phrases to note are the references to rates, lending requirements, subprime lending and fundamentally healthier state.  The real estate market of the past five years has been fueled by the high calorie, high fat diet of "loans for everyone".  If you want to see the short-term effects of a high calorie high fat diet watch the movie "SUPERSIZE ME". 

Note the effects of today's diet ... without the sub-prime market and low interest rates the housing marketing and feeding frenzy has slumped.  For a healthy market to re-emerge a few diet changes need to take place starting with the mortgage industry imposing tighter standards and the real estate community promoting homeownership not speculation and flipping.