Incline Village Real Estate National Real Estate July Re-Cap

July 2011   Good thing were in Lake Tahoe.  We have seen home prices stablize and sales are at year to date high rates.  Tim Lampe, Incline Village Realtor.

Sales of existing homes declined 3.8% in May to a seasonally adjusted annual rate of 4.81 million units, the National Association of Realtors (NAR) reported on June 21. Existing home sales are currently 15.3% below their level a year ago. Sales at this point in 2010 were higher mainly due to the home buyer tax credit, and May 2011 sales were adversely affected by weather to an extent. Existing-home sales declined in every region except the West, where the rate was flat.  

Overall, existing-home sales have increased in six of the past 12 months, which highlights the slow recovery. Meanwhile, despite 30-year mortgage rates hovering near 4.50% in mid-June, the lack of demand continues to pressure home sales and prices. Although seasonally adjusted data tends to be a better indicator, one of the few upbeat notes in the latest NAR data was that seasonally unadjusted sales increased 4.8% - and across all four regions - in May.  

The NAR also reported that the inventory of existing homes on the market declined 1% in May, to 3.72 million. The months' supply increased to 9.3 months (from 9.0 months in April) at the current sales pace. Distressed sales declined to 31% of total sales in May from 37% in April.  

Pending home sales, which usually lead existing home sales by one to two months, declined 11.6% in April. As a result, June's existing home sales are not likely to see a significant pickup when the data is released on July 20. Home sales are normally expected to improve during the spring months, but that improvement has been slow so far.  

New-home sales were down 2.1% in May, according to the Census Bureau. The months' supply of new homes on the market fell to 6.2 from 6.3 months in April. That is near the average months' supply historically, indicating that excess supply of new homes is being unwound.  

A Double Dip in Home Prices
The S& U.S. National Home Price Index declined by 4.2% in the first quarter of 2011, after having fallen 3.6% in the fourth quarter of 2010. The National Index hit a new recession low with the first quarter's data and posted an annual decline of 5.1% versus the first quarter of 2010. Nationally, home prices are now back to their mid-2002 levels. (See chart below.) "This month's report is marked by the confirmation of a double-dip in home prices across much of the nation," says David M. Blitzer, Chairman of Standard & Poor's Index Committee.

Home Starts Rise, But Builder Optimism Fizzles
One bright spot for the housing industry in June was news that starts were up more than 3% in May, to 560,000. The increase was much better than many market watchers had expected, though still not enough to offset the 9% drop the month before. On June 15, the National Association of Home Builders reported that builder confidence has dropped to its lowest level since last September.  

Mortgage Debt Still Weighs on Consumers
The Federal Reserve's Flow of Funds data, released June 10, showed that while Americans are now making progress in reducing mortgage debt, the process has only just begun. From 1950 until 2007, mortgage debt owed by American households never declined from one year to the next. But that began to change in 2008. As housing went bust and the economy slumped, mortgage debt owed began to decline. That decline continued through the first quarter of this year. However, there is a long way to go. At 72% of household liabilities, mortgages are still an unusually large portion of consumer debts; the average from 1986 though 2000 was 66.2%. The decline in mortgage debt levels reflects a combination of factors from foreclosures, to slower home sales, to reluctance to take on debt with home equity loans.  

Borrowers with Second Mortgages Twice as Likely to Be Underwater
A recent CoreLogic report supported expectations that home prices might have further to fall. The number of U.S. households that owe more on their mortgages than their property is worth was 10.9 million in the first quarter of 2011. This accounts for 22.7% of all households with a mortgage, slightly less than the 23.1% recorded in the fourth quarter of 2010. In addition, while the drop in housing prices caused much of the negative equity, equity extraction was also a major cause. Borrowers with second mortgages on their homes were twice as likely to be underwater. Homeowners underwater have an incentive to foreclose on their properties, but those homeowners with second mortgages are even more at risk of foreclosure. That's because the chance for a short sale becomes more challenging because it's difficult to get all the lenders to agree.  

Rates and Mortgage Activity
Fixed interest rates on 30-year mortgages reached a new low for the year, falling to 4.55% for the week ended June 2. Two weeks later, the 15-year mortgage rate dropped to its low point of 3.67%, from the previous week's 3.68%, according to Freddie Mac. Yet new mortgage activity and refinancing continue to decline. On a weekly basis, through June 22, mortgage applications decreased 5.9%. Refinancing accounted for 69.2% of the applications, down from 70% the previous week.