June 2010: A good buyer is hard to find | Eastern North Carolina Now

    For all those treading water, hoping to toe-touch a housing-market bottom, it may be better to embrace life as fish. The bottom is elusive, as are the ready, willing and able buyers it will take for the market to provide solid ground for folks to stand on their own feet again. The world economy is held fast, it seems, in a Catch-22 situation: The recession was caused and is being drawn out by the housing bust, and now the recession is expected to cause more downward pressure on home values.

    The government did its best to provide artificial stability with the Extended Homebuyer Tax Credit; but that only lasted for one month, April 2010, if at all. Of course, we all saw at least some writing on the wall. We were waiting for the artificial high and then, the hangover. It's just that many people didn't expect the hangover would come prematurely, or to be this bad.

    Existing home sales were up in April by a better-than-expected 7.6 percent, to a seasonally adjusted annual rate of 5.77 million, the best showing in five months; and new home sales were up by a better-than-expected 14.8 percent, to a 504,000 unit annual rate, the highest since May 2008. From February to April the National Association of Realtors reported gains in the Pending Home Sales Index, which leads existing sales by roughly one to three months, largely due to the time it takes to obtain financing. The Realtors expected the increase in pending home sales to translate into an increase in existing home sales from April to June. At that point, the summer buying season would be upon us, which would sustain a meager amount of activity.

    Everything was moving in this sunny direction until the beginning of June, when the dreary numbers for May existing sales came in. April's 6 percent increase in pending sales, did not translate to an increase in May existing sales. Instead, in May, the number of closings dropped off by 5 percent.

    This turn of events has economists perplexed and lawmakers nervous. For some reason, many buyers who were expected to close in May found it difficult to secure a loan, or to sell their previous residence. In rural areas, such as eastern North Carolina, there may have been many potential buyers who initially applied for the USDA's Single Family Housing Guaranteed Loan program, only to find that the program ran out of money and now must wait on Congress to pass new funding.

    Long delays such as these, as well as those related to the complex short-sale process, have increased the waiting period from contract to closing from an average of one month to over two months. In light of these abnormal circumstances, and in an attempt to preserve the tax credit's effectiveness, on June 10 U.S. Senator Harry Reid introduced legislation which would extend the Extended Homebuyer Tax Credit closing date-expiration from June 30 to Sept. 30.

    As forecasted in our April 2010 market report, inventory has continued to rise. Typically, the first glimpse of summer results in a 6 percent increase in listings. This April, market inventory increased 11.5 percent, due to the influx of distressed properties and the first ray of new hope for long-suffering homeowners wishing to sell. I regret to report that any rise in housing prices engendered by the brief spike in sales will be nullified and reversed by these high inventories, according to the law of supply and demand.

    If there's one positive thought to be gained from any of this, it's a reaffirmation that this is truly a buyers' market. Yes, there are houses out there that are still overpriced and many sellers who are still in denial of this fact; but there are some once-in-a-lifetime deals, too. In May, lenders repossessed a total of 93,777 properties during the month (a record high), which will be sold via the Multiple Listing Service along with everything else. These bank-owned properties, along with typical foreclosures, will broaden the selection and whittle-down prices.

    With deals like this, where have all the buyers gone?

    In our May 2010 market report, we documented that mortgage applications had begun to decrease amidst historically low mortgage rates. At the beginning of May, mortgage applications were down 9.5 percent, and the 30-year fixed-rate mortgage was at 4.97 percent. At the beginning of June, mortgage applications are down nearly 40 percent from a month ago to their lowest level since April 1997, even with a 30-year fixed-rate mortgage of 4.74 percent.