Right on schedule as the Housing Clunker tax credit expires, we learn that new home sales have plummeted to a record low.
New home sales declined 32.7% to a seasonally adjusted annual rate of 300,000 last month, down from an downwardly revised 446,000 in April, the Commerce Department reported Wednesday. Sales year-over-year fell 18.3%.
This is the slowest sales pace since the Commerce Department began tracking data in 1963. The prior record was set in September 1981, when new homes sold at an annual rate of 338,000.
There is no possibility of sustaining the current government driven sales numbers as long as unemployment stays high. Economist Patrick Newport:
What really will drive sales forward and I mean after July, will be the job market. Having a good mortgage rate helps affordability, but we’ve had low mortgage rates for a long time now and sales have stayed below 5 million, except when the tax credit was involved.
Honest mortgage brokers will tell you that their current bread and butter is FHA purchase loans—taxpayer insured and near zero down payment time bombs. Buyers are scooping up properties using the same loan products, overseen by the same hacks who caused the catastrophe in the first place. Buyers are getting loans for current market value, which makes sense if you expect the market to stabilize or go up —an impossibility in too many parts of the country. Plenty of those loans will go bad.
FHA loans are the easiest type of real estate mortgage loan to qualify for. The FHA guidelines for loan qualification are the most flexible of all mortgage loans that require less than 5% down payment.
Unemployment is the driver behind the new wave of strategic foreclosures. Borrowers who had the credit and income to qualify for a loan are now so insanely upside down that it makes no sense to them to keep making payments. If you owe $300K on a house now worth $125K—which is happening in a lot of neighborhoods—and you are scraping by on unemployment, it gets tough to keep throwing more money at an asset guaranteed to keep losing value.
Homeowners who once had jobs and good credit also lived in good neighborhoods before the crash. Now they’re surrounded by sloppy flips and bottom end buyers, either first timers with no skin in the game or investors looking for cheap rental properties. It doesn’t take long for a residential neighborhood to fall into decay.
Obama’s grand scheme for saving homeowners from foreclosure has, of course, been a big, taxpayer funded flop. The administration blames the private sector:
President Barack Obama’s housing secretary, Shaun Donovan, said in a speech to a group of mortgage bankers Tuesday that [the] administration did not foresee how much effort it would take for the mortgage industry to launch the program.
Even HuffPo admits Obama’s machinations won’t work:
The Obama administration’s signature foreclosure-prevention program is likely to be a failure and has not done enough to help struggling homeowners who owe more on their mortgage than their home is worth, according to a scathing new report by a government watchdog. And the program may even be pushing these homeowners further underwater.
Under the best case scenario, homeowners would get their loans modified for five years. No word from the administration on what happens after five years. It’s asinine to assume that the housing market will recover sufficiently in five years to enable homeowners to sell or refi.
Obama’s new and improved tax payer funded boondoggle doesn’t address the issue of negative equity. When a borrower owes far more on a home than its current market value, the normal avenues of escape are cut off. You can’t sell if you lose your job when your home is worth significantly less than the balance due, unless the lender agrees to accept a payoff of less than the full amount owed. It can be done, but short sales are time consuming as well as frustrating and so often fail that buyers’ avoid them. The sudden interest in short selling has spawned a new breed chrarlatans preying on frightened homeowners. Scammers charge upfront fees and either do nothing, or do nothing that the homeowner couldn’t have done working directly with the lender.
The Obama regime will try to create the illusion that something they’re doing is fixing the housing mess. In reality, all they’ve done is waste taxpayer money creating a clunker program for housing. As long as unemployment remains high—and under this regime, it will—the housing crisis will get worse.