Hey, AR! Hope you're enjoying your Labor Day Weekend!
Statistics here in Chicago indicate median prices here have fallen 9.5% versus last year. The median price drop across the country has approached 16%.
But, still, in many parts of the U.S., the housing slump continues.
Does this makes sense? After all, in a perfect world, wouldn't lower prices, coupled with high inventory, stimulate demand, and at least begin to turn things around in real estate?
Some feel that the recent improvement in the pace of the median price drop indicates the market, in general, may be finding a bottom. 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 we may be further away from a bottom. 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 of 6 months.
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.)
Part of the problem? Lenders, wary after seeing many of the loans they have offered over the past few years turn delinquent, have greatly tightened their standards for approving new mortgage loans. As fewer mortgages are approved, fewer potential buyers can find the financing they need to buy a home. This, in itself, will hamper the housing market recovery in the near term.
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 demonstrate why Feds Funds Rate reductions often have little effect Home Mortgage Interest Rates today.
For more info and insight, read our post Sunday via BlogChicagoHomes.com, with a link to Gail MarksJarvis's story in Sunday's Chicago Tribune.
DEAN & DEAN'S TEAM CHICAGO
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