Rough sailing ahead for the economy
There’s no surprise with the latest home sales data released by the National Association of Realtors. Existing home sales were down to 8.6 percent MoM and 10.6 percent YoY. Condominiums fell by 13 percent as well. Lawrence Yun, chief economist of the NAR, commented, “Falling home prices would lead to faster contraction in consumer spending and further deterioration in bank balance sheets. More importantly, falling home values would lead to higher loan defaults, including those recently modified distressed mortgages.”
Almost half of November purchases are accounted for distressed sales. We see several reasons why homeowners have accepted an amount which is actually less than the value that he owes on the property. First, homeowners have lost their rights to get back on paying delinquent payments to reach an agreed amount. This has forced them to put the property in a public sale. Second, large financial losses due to the recent job cuts have weakened the capacity of homeowners to sustain their monthly payments. Third, bargain hunters have taken advantage of lower mortgage rates in the past month. For most distressed sales, buyers receive a good value with their purchases at below general market prices. Lastly, not all of these houses require fixing. Some have remained in good condition and that gives buyers a great deal in the market.
Although housing starts should be the goal, distressed sales can somehow save further dismal figures in the monthly data of the NAR. It will still take awhile before new construction is revived.