Dummies guide to crisis 2007-09 (Part 4 of 4)

In this last posting, we will look at the current situation of real estate sales and prices in the USA. At the same time, its important for us to look beyond the numbers as what we see nowadays will not be what we get.


Recently, the media reported that existing home sales rising 7.2% in July. If only the picture were as positive when you look behind the headline numbers that create the excitement. But unfortunately that is not the case.
The inventory of unsold homes rose by 7.3% in July, as many more homes came on the market than were sold. That is not a sign that the housing crisis has bottomed.


There are also reasons to believe the sales increase of recent months is temporary, since to a significant degree they were artificially driven by the $8,000 bonus being paid to first-time home-buyers. The National Association of Realtors (NAR) reports that 30% of July home sales were to first-time home-buyers enticed by the bonus. Unfortunately, the bonus program expires November 31, and given the time it takes to close a deal the NAR says would-be buyers need to make offers by the end of September. So at the end of September, six weeks away, will that high percentage of home sales to first-time buyers, 30% of total sales, go away? One would think most of it will.


It is also not encouraging that 31% of July sales were of distressed properties, those in foreclosure, often bought at auction by speculators who intend to flip them back into the market later for a profit, and "short-sales" in which the bank accepts a low-ball offer rather than put the property through the foreclosure process.


That leaves a discouragingly low level of sales that would be considered normal, sales at relatively fair value, with sellers not in a financial crisis, and buyers not subsidized by the temporary first-time buyer bonus.


There was also the discouraging news from the Mortgage Bankers Association (MBA), that the mortgage-delinquency rate rose to 9.24% as of the end of the second quarter, a new record, and that the combined rate of mortgages either delinquent or already in foreclosure rose to a record 13.16% of all outstanding mortgages.


The MBA also noted another behind the headline statistic that is not encouraging, saying, "A year ago it was subprime adjustable-rate mortgages [which were being reset at higher rates] that were causing the problems. As a sign that mortgage performance is now being driven by economic problems like job losses, prime fixed-rate mortgages now account for one in three foreclosures.


If it weren't for the probable temporary aspect of the improvement; and if we could only see consumer spending picking up elsewhere, in case this improvement in home sales is a temporary aberration, and not a sign of the recession ending.