The housing bust continues as sales of existing homes is at its lowest pace on record and prices drop more than 4%.

Demand for previously owned homes dropped further than expected in September in the course of the persisting mortgage market problems. The single-family sales hit their lowest sales pace in nearly 10 years.

Overall home resales decreased to a 5.04 million annual rate, an 8.0% decrease from August's decreasing revised 5.48 million annual pace, the
National Association of Realtors said Wednesday.

The August existing-home sales level came in well below Wall Street expectations for a 5.25 million rate.

The 5.04 million pace is the lowest since the association started accounting for combined single family and condo sales in 1999. Based on single-family sales, the 4.38 million pace in September is the weakest since January 1998.

Lawrence Yun, NAR senior economist, blamed the credit crunch.

"Mortgage problems were peaking back in August when many of the September closings were being negotiated, and that slowed sales notably in higher priced areas that rely more on jumbo loans," Lawrence Yun said.

"The credit freeze in August definitely impacted sales in September, particularly the jumbo [loan] side, so we have seen a large sales decline in the upper end of the market," Yun added.

The median home price was $211,700 in September, down 4.2% from $220,900 in September 2006. The median price in August this year was $224,400.

Mr. Yun said conditions in the jumbo loan market have improved, so he still expects 2007 to rank as the fifth-best year in terms of existing home sales. Prices are expected to ease about 1.5% from record high of last year of $221,900.

Inventories of homes rose 0.4% at the end of September to 4.40 million available for sale, which represented a 10.5-month supply at the current sales pace. There was a 9.6 month supply at the end of August, revised down from a previously estimated 10.0 months.

Existing-home sales dropped in all regions. Sales dropped 7.0% in the Midwest, 10.0% in the Northeast, 9.9% in the West, and 6.0% in the South.

The housing slump continues but rates become more attractive to borrowers.

Freddie Mac today released the results of its Primary Mortgage Market Survey® (PMMS®)  in which the 30-year fixed-rate mortgage (FRM) averaged 6.33 percent with an average 0.5 point for the week ending October 25, 2007, down from last week when it averaged 6.40 percent. Last year at this time, the 30-year FRM averaged 6.40 percent.

The 15-year FRM this week averaged 5.99 percent with an average 0.6 point, down from last week when it averaged 6.08 percent. A year ago, the 15-year FRM averaged 6.10 percent.

Five-year Treasury-indexed hybrid adjustable-rate mortgages (ARMs) averaged 6.03 percent this week, with an average 0.5 point, down from last week when it averaged 6.11 percent. A year ago, the 5-year ARM averaged 6.14 percent.

One-year Treasury-indexed ARMs averaged 5.66 percent this week with an average 0.6 point, down from last week when it averaged 5.76 percent. At this time last year, the 1-year ARM averaged 5.60 percent.

“Market concerns about slower economic growth over the next few months allowed mortgage rates to drift lower from last week,” said Frank Nothaft, Freddie Mac vice president and chief economist. “How much of a drag the housing slump will be on the economy remains unknown. Additionally, recent reports suggest some regional manufacturing weakness in October.

“Meanwhile, sales of existing single-family homes in September dropped to the slowest pace in nearly a decade – since January 1998 – reflecting the effects of the credit tightening that occurred in August.”
 
source: FreddieMac, Primary Mortgage Market Survey® (PMMS®), www.freddiemac.com

A recent study shows that home renovations will decline as housing market troubles persist.

Home renovation spending in 2007 will be less than the figures posted in the past years, the report from the Joint Center for Housing Studies at Harvard University showed.

Declining home prices and waning consumer confidence are expected to negatively affect renovation activity, which is forecast to drop for the first time since 2003.

The Joint Center, which has tracked renovations since 1998 in its Leading Indicator for Remodeling Activity, expects a decline of 2.3 percent for all of 2007 as compared with the 2006 data.

Nicolas Retsinas, the center's director, said in a statement that "As homeowners become increasingly concerned about falling house prices and a slowing economy, home improvement spending is dragging. Coupled with very modest home sales, spending levels are likely to fall,"

Retsinas pointed out that the liquidity squeeze that gripped credit markets starting in July put a damper on cash-out refinancing activity, one of the prime methods home owners use to fund big renovation projects.

Home-price drops also affect consumer spending less directly, by eroding the "wealth effect," the feeling of high level of confidence of homeowners that home prices boosted during the boom.

The center predicted the decline will continue through at least the first half of 2008 with spending expected to drop 4.2 percent during the three months ending June 30, 2008.

With the slowdown in the housing market, stricter mortgage-lending standards and rising home foreclosures, renters are more easily answering the question: "Why rent when you can own?" Such a question was common during the housing boom, when homeowners, happy with the gains their homes were making -- at least on paper -- would urge non-property-owner friends to join the party.

The conventional real estate wisdom holds that owning a home is a better investment than renting. Real-estate values tend to appreciate over time (despite temporary negative blips in home prices) and homeowners who hold mortgages -- at least those who financed with fixed-rate loans -- know exactly what their monthly housing payments will be for the length of their loan. Renters don't have the same certainty as rates may increase during renegotiation after their current lease expires.

But some renters, especially with the housing slump, say that it is easier these days to cope up with price hikes when they renew a lease.. Several areas across the U.S. that saw substantial home-price appreciation during the housing boom also experienced steep property-tax increases, and mortgage costs for adjustable-rate or subprime loan borrowers can be tough as rates push higher. What's more, home buyers who bought at the top of the market can find themselves with high mortgage payments for an asset that has lost much of its value. With the housing market in flux, it makes sense to hold off on buying, renters say. Now, these renters are asking, "Why own when you can rent?"

Marc Savitt, president-elect of the National Association of Mortgage Brokers, says that many first-time buyers, at least those he encounters at The Mortgage Center in Martinsburg, W. Va, are choosing to remain renters over taking out unfavorable home loans. About 75% of prospective buyers decide to postpone buying when informed that waiting to do so could garner them lower rates, he says.

Today, people are selling their house not because they lose their job, transferring to another state or just came from a divorce. One reason which is becoming popular these days is that it is more economical to rent than own a home.

A couple opted to lease a property in San Francisco after selling their property. The new neighborhood is nicer and affords him a faster commute for the husband. Plus, their two-bedroom, two-bathroom apartment has city and San Francisco Bay views and includes a garage parking spot and off-street parking. While the rent is a steep $3,000 a month, he says the price of owning a comparable home in his area -- where home prices start at $2 million -- is three times higher.

To put their cash to good use, they invested his profits from the home's sale in the stock market, where assets are more liquid, easier to transfer or sell during market fluctuations than in real-estate. 
 
 

The results of the Freddie Mac's Primary Mortgage Market Survey® (PMMS®)  showed mixed results as the 30-year fixed-rate mortgage (FRM) averaged 6.40 percent with an average 0.5 point for the week ending October 18, 2007, unchanged from last week when it averaged 6.40 percent. Last year at this time, the 30-year FRM averaged 6.36 percent.

The 15-year FRM this week averaged 6.08 percent, up from last week when it averaged 6.06 percent. A year ago, the 15-year FRM averaged 6.06 percent.

Five-year Treasury-indexed hybrid adjustable-rate mortgages (ARMs) averaged 6.11 percent this week, down slightly from last week when it averaged 6.12 percent. A year ago, the 5-year ARM averaged 6.11 percent.

One-year Treasury-indexed ARMs averaged 5.76 percent this week, up from last week when it averaged 5.73 percent. At this time last year, the 1-year ARM averaged 5.57 percent.

"Both economic indicators and mortgage rates came in mixed this week," said Frank Nothaft, Freddie Mac vice president and chief economist. "While retail sales were stronger in September, consumer confidence fell below market expectations in October. Moreover, both the core consumer price index and producer prices for September remained contained.

"In his October 15th speech, Fed Chairman Bernanke suggested housing would be a 'significant drag' on the economy going into the next year. Indeed, inventories of unsold homes remained exceptionally high. And October's homebuilder confidence fell to the lowest level since 1985, when record keeping began."

reference: FreddieMac Primary Mortgage Market Survey® (PMMS®), www.freddiemac.com