Typically the summer months are the busiest time of year for home sales. But when the Home Buyer Tax Rebate expired it motivated buyers and sellers to move in the spring. That is all good, except now we are looking at a gaping hole in the market.
The market now is moribund. Pending home sales are at all time lows and now the demand for mortgages are scraping 13 year lows.
We have sucked all the life and energy out of the housing market to get some of our tax money back.
While real estate has always had ebbs and falls, there was a consistency to it. Now we have broken even that with millions of agents, brokers, vendors, and mortgage companies looking at activity drying up during what is typically the busiest time of the year.
That is not the sign of a healthy market.
Demand for loans to purchase U.S. homes sank to a 13-year low last week, and refinancing demand also slid despite near record-low mortgage rates, the Mortgage Bankers Association said on Wednesday.
Requests for loans to buy homes dropped 3.1 percent in the week ended July 9, after adjusting for the Independence Day holiday, to the lowest level since December 1996, the industry group said.
Refinancing applications fell 2.9 percent, and the mortgage market index that reflects total loan demand also fell 2.9 percent. via MSNBC
This is turning into a trend:
The average rate on a 30-year fixed mortgage dropped to 4.57 percent this week, mortgage company Freddie Mac reported Thursday. That’s down from the previous record low of 4.58 percent set last week.
It’s the lowest since Freddie Mac began tracking rates in 1971. The last time rates were lower was in the 1950s, when most long-term home loans lasted just 20 or 25 years.
Rates have fallen over the past two months. Investors, concerned with the European debt crisis, have poured money into the safety of Treasury bonds. Treasury yields have fallen and so have mortgage rates, which tend to track yields on long-term Treasurys. via AJC
What is truly a shame is that the lending environment is so tough that even with these low rates deals are still not getting done. You would think that mortgage brokers across the country should be working non stop, but most are scrambling for any work.
The housing tax credit took the wind out of the sails of the real estate industry and has created a moribund atmosphere. Those in a position to refinance already have while those who need to can’t due to the tightening restrictions.
The mortgage industry is in a true Catch 22.
Over the counter or penny stocks is not the place where people put their retirement funds. But years of mismanagement and social engineering have landed Fannie Mae and Freddie Mac in the world of OTC stocks.
Trading under a dollar for too long has gotten these stocks out of the New York Stock Exchange and into the nether worlds of the penny stock trading floor.
There is an irony that what is perceived as the underbelly of the investment world is where Fannie Mae and Freddie Mac are forced to live. The full faith and credit of the Federal Government, who own 80 percent of the two companies now, can not prop the valuation of the remaining 20 percent of shares to over a dollar.
And what makes matters worse, these two companies are providing the liquidity to an already distressed housing market.
But to listen to the politicians in Washington all is fine with the housing market and home buyers have nothing to fear.
I am not so sure of that anymore.
- When the guarantor of the housing market is essentially a subsidized federal program, I get nervous.
- When the private market does not see any value in lending to home buyers, I get nervous.
- When investors see no value in holding mortgages, once seen as the safest investment that many built their retirements around, I get nervous.
We have to remember that the housing market needs to be self sustaining once this crisis is over. The valuation of our homes have to be based upon what the free market thinks they are worth without government subsidies. Tax credits, artificially low interest rates, and other government props do not make a healthy market, especially when the government is running huge deficits.
The politicians, the media, and the National Association of Realtors all can not talk about the problems we have in the mortgage world but the real barometer is how the investment world sees the problem.
By delisting Freddie Mac and Fannie Mae, the financial markets have spoken that the companies that are the underpinning of the housing market have no value to investors.
