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Existing Home Sales, Prices Keep Falling

Re-Fi's up, but potential buyers staying out of the market

By Mark Huffman
ConsumerAffairs.com

January 24, 2008

Mortgage applications jumped as homeowners rushed to refinance, hoping to lock in lower interest rates.

But falling home values are a major cause for concern for both Realtors and homeowners, as December saw a decline in the median price of a single family home. It was the first price decline since the 1960s.

"Home sales remain weak despite improved affordability conditions in many parts of the country, but we could get a quick boost to the market if loan limits are raised in combination with the bold cut in the Fed funds rate," Lawrence Yun, NAR chief economist, said.

"Home prices are lower, mortgage interest rates continue to decline and incomes are higher, but many potential buyers are delaying a purchase."

According to Freddie Mac, the national average commitment rate for a 30-year, conventional, fixed-rate mortgage fell to 6.10 percent in December from 6.21 percent in November; the rate was 6.14 percent in December 2006.

Last week, Freddie Mac reported the 30-year fixed rate dropped to 5.69 percent.

"Although interest rates on jumbo loans have fallen somewhat, they remain well above conventional mortgage rates," Yun said. "It isn't surprising that the share of single-family homes selling for more than $500,000 fell to 12.4 percent of transactions in December from 14.2 percent a year ago."

Total housing inventory fell 7.4 percent at the end of December to 3.91 million existing homes available for sale, which represents a 9.6-month supply at the current sales pace, down from a 10.1-month supply in November.

"The fall in inventory in December is encouraging, but inventories remain elevated and buyers have a clear edge over sellers in many markets," Yun said.

The national median existing-home price for all housing types was $208,400 in December, down 6.0 percent from a year earlier when the median was $221,600. But the Realtors said that because home sales have slowed the most in higher cost markets, there is a downward distortion to the national median as the mix of closed sales has changed over the past year.

For all of 2007, the median price was $218,900, down 1.4 percent from a median of $221,900 in 2006.

Refinancing drives mortgage applications

People flocking to refinance their existing mortgages pushed mortgage applications up 8.3 percent last week, according to the Mortgage Bankers Association’s Weekly Mortgage Applications.

The MBA’s Market Composite Index, a measure of mortgage loan application volume, was 981.5 compared with 906.4 one week earlier, and was up 63.7 percent compared with the same week one year earlier.

"Refinance applications are up 92% since the beginning of November and purchase applications are up 7%. With tighter credit conditions we do not know how many of these applications will become loans, but it is clear that borrowers are responding to the 40-80 basis point drop in rates we have seen since November 2 across products," said Jay Brinkmann, Vice President of Research and Economics at the Mortgage Bankers Association.

The Refinance Index increased 16.9 percent to 4178.2 from 3575.5 the previous week and the seasonally adjusted Purchase Index decreased 4.6 percent to 439.9 from 461.2 one week earlier.

The Conventional Purchase Index decreased 5.5 percent while the Government Purchase Index (largely FHA) increased 1.0 percent. On an unadjusted basis, the Purchase Index increased 1.1 percent to 369.7 from 365.7 the previous week.

The refinance share of mortgage activity increased to 66.0 percent of total applications from 62.7 percent the previous week. The adjustable-rate mortgage (ARM) share of activity increased to 9.3 from 9.2 percent of total applications from the previous week.

The average contract interest rate for 30-year fixed-rate mortgages decreased to 5.49 percent from 5.62 percent, with points increasing to 1.07 from 0.94 (including the origination fee) for 80 percent loan-to-value (LTV) ratio loans.

The average contract interest rate for 15-year fixed-rate mortgages decreased to 4.96 percent from 5.07 percent, with points increasing to 1.22 from 1.09 (including the origination fee) for 80 percent LTV loans.

The average contract interest rate for one-year ARMs decreased to 5.51 percent from 5.77 percent, with points increasing to 1.01 from 1.00 (including the origination fee) for 80 percent LTV loans.

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