Brokers Eye Switch to Commercial Mortgages as Residential Cools

"We're definitely seeing a cross-over, especially as it relates to small-balance commercial loans," said Clay Reese, senior vice president of EverBank Commercial Lending, Jacksonville, who counted "20 or so" commercial lenders among the dozens of exhibitors at the convention's big trade show.

If there is a shift from residential to commercial, it is in at least one sense a return to their roots for mortgage brokers, who began moving from the commercial sector to residential financing about a decade ago when the housing market began to sag and office, retail and industrial construction started to pick up steam.

Existing home sales drop in July

Sales of previously owned homes plunged in July to the lowest level in 2 1/2 years and the inventory of unsold homes climbed to a new record high, fresh signs that the housing market has lost steam.

The National Association of Realtors reported Wednesday that sales of existing homes and condominiums dropped by 4.1 percent in July from June to a seasonally adjusted annual rate of 6.33 million. That was the lowest level since January 2004.

The latest snapshot of housing activity was weaker than analysts anticipated. Economists were forecasting the pace of sales to fall to 6.55 million.

New-home sales drop 4.3 percent during July

Sales of new homes dropped in July by the largest amount since February while the inventory of unsold homes climbed to a record high.

Piling on more proof that the housing boom is over, the Commerce Department reported Thursday that new home sales fell by 4.3 percent last month to a seasonally adjusted annual sales pace of 1.072 million units. The decline was the largest since an 11.5 percent plunge in February.

The July level of 1.072 million units sold was down 21.6 percent from a year earlier and below the 1.100 million that had been expected by analysts.

“Builders are offering many extras to entice buyers,” said Peter Morici, a professor at the University of Maryland’s business school. “Overall, values are falling and builders’ profits are threatened.”

Sales of both new and existing homes set records for five consecutive years as the housing industry enjoyed a boom powered by the lowest mortgage rates in four decades. But rates have been steadily rising this year as the Federal Reserve tightens credit conditions as a way to slow the economy and keep inflation under control.

Analysts expect home sales to drop by about 10 percent this year.

Prospective home buyers have turned cautious about making such a big-ticket purchase as mortgage rates have gone up and uncertainty has risen over whether the economy will keep slowing, analysts said.

The government reported that the median price of a new home was $230,000 in July, down from $233,800 in June and up from $229,200 a year ago.

Housing Permits, Starts, Builder Confidence Fall

It's that time again. The National Association of Home Builders (NAHB) and the Census Department have released their monthly reports on the state of the new home industry in consumer terms and the attitude of those who make their living by building the homes.

The Census Bureau (U.S. Department of Commerce) and the U.S. Department of Housing and Urban Development issue a joint report on housing permits, starts, and house completions each month and, except for a few anomalies that have gotten economists all excited, these figures have been generally declining for most of the year.

July was not much of an exception.

Building permits issued in July were at a seasonally adjusted annual rate of 1,747,000 units, a 6.5 percent decline from the revised June rate of 1,869,000 and nearly 21 percent below the annualized rate of permits issued in July 2005 (2,206,000). Permits for single family housing (1,318,000, annualized) declined by 6.1 percent below the number issued the previous month.

Housing starts declined to 1,795,000, a 2.5 percent change from revised June figures and 13.3 percent lower than the July 2005 rate of 2,070,000. Single-family starts totaled 1,452,000, off 2.3 percent from revised June figures.

1,927,000 privately-owned housing units (on an annualized basis) were completed in July. This was a decline, overall, of 5.4 percent from June but, in about the only piece of good news, was actually an increase of 2.3 percent over the same month in 2005. This, however, may be an indication of the lag time involved in construction of multi-unit dwellings. Single family homes were completed at a rate of 1,665,000, a decline of 4.6 percent from June.

Figures for permits were down in every region, going into double digits in the West where permits for single family units were off by nearly 15 percent. Year over year every region dropped by at least 17 percent (the South) and by a full one-third in the West.

Interestingly, the number of units for which permits had been issued but construction not yet begun actually dropped in July. 214,400 permits that had been previously pulled were still sitting on builders' desks at the end of the month - this was 9.6 percent fewer than in June.

So how are builders feeling about the future? Not so good according to the Wells Fargo/NAHB Home Builders Housing Market Index (HMI) for August. The index just hit its lowest level since February of 1991, the seventh consecutive month in which the index has fallen.

The HMI measures builder perceptions of current sales and their expectations of sales over the next six months on a scale of poor, fair, or good and then asks respondents to rate sales traffic from very low to very high. Scores for each component are then used to calculate a seasonally adjusted index. Any number over fifty - by component or aggregated - indicates that more builders view sales conditions as good rather than poor.

The single-family home sales component fell seven points to 36 while sales expectations and perceptions of sales traffic each fell six points to 40 and 21 respectively.

Builders in the Midwest may need to seek professional help. The total HMI index in that region fell to 15, five points lower than July. The South and West are catching up with a nine point drop to 41 in Dixie and a 10 point decline to 42 in the West.

NAHB Chief Economist David Seiders commented that "It's important to recognize that home sales and housing production are subsiding from record levels a year ago, and those levels clearly were unsustainable. We expect the erosion in market activity to continue through most of this year before stabilizing in 2007." He also noted that builder sentiment tends to contract "by a greater margin than actual sales and production activity."

Existing home sales mired in deep slump

The nation's once-booming housing market slumped even further in the spring with sales declining in 28 states, led by big drops in the formerly red-hot areas of Florida, Arizona and California.

Sales of existing homes fell nationwide to a seasonally adjusted annual rate of 6.693-million units in the April-June quarter, down by 7.5 percent from the record rate of 7.193-million units in the spring of 2005, the National Association of Realtors reported Tuesday.

Also, the National Association of Home Builders said its monthly survey of builder sentiment fell to its lowest level in more than 15 years. The decline, which pushed the index down seven points to 32, was blamed on rising unease among home builders about record levels of unsold new and existing homes and increased cancellations of contracts for new homes. It marked the seventh consecutive drop.

"An increasing number of potential buyers are adopting a wait-and-see attitude because of uncertainty about where the housing market is headed," said David Seiders, chief economist for the home builders.

The slowdown is occurring after a lengthy boom in which sales of new and existing homes set records for five straight years as buyers flocked into the market, lured by the lowest mortgage rates in more than four decades.

New US home sales 'to drop 12.8%

Overall sales levels in the US housing market will change little over the the rest of 2006, forecasts the National Association of Realtors (NAR).

Although the NAR is predicting that sales will continue at a fairly steady pace for the rest of the year, falling sales earlier in the year mean that annual totals will be lower overall.

Existing home sales are forecast to fall 6.5% to 6.61 million for this year as a whole, but this is still the third highest figure for the US market on record after 2005 and 2004. New-home sales are projected to drop 12.8% in 2006 to 1.12 million, also the third best on record.

David Lereah, NAR's chief economist said that new home sales and new houses being built have been fluctuating, so the overall market is stabilizing.

“On one hand, is the rise in mortgage interest rates that has slowed sales in many higher-cost markets, and on the other is 3.8 million new jobs over the last two years,” Mr Lereah said.

“This means many potential home buyers could enter the market in the foreseeable future, especially in moderately priced areas where affordability conditions remain favorable. In fact, this is already occurring.”

The 30-year fixed-rate mortgage is running nearly a percentage point higher than a year ago but is likely to rise very slowly in the months ahead, reaching 6.9% in the fourth quarter, the NAR have said.

NAR President Thomas M. Stevens said current market conditions are favorable for buyers.

“The rise in housing supply is the biggest change in the market over the last year,” said Mr Stevens. “Clearly, this has taken pressure off of home prices and has significantly widened choices for buyers.”

The national median existing home price for all housing types is forecast to grow 4.3% this year to $229,000, while the median new home price is expected to rise only 0.5% to $242,100 as builders start to offer incentives to clear unsold inventory.

Home buyers reluctant about taking the plunge

Home buyers have the upper hand in the real estate market for the first time since the record run-up in prices began two years ago, but industry-watchers say most are reluctant to jump in and instead are waiting to see when values will bottom out.

Put simply, buyers are scared, said Jan Montgomery, a realtor who owns Canyon Shadows Realty in Mesa.

“There’s a lot of negative information coming at them about the bubble bursting and the market falling,” she said. “Everything is all negative and they’re taking that on themselves, thinking ‘Maybe I shouldn’t do anything. I should just wait until it settles.’ An experienced buyer is probably not viewing this the same way, but our first-time home-buyers or new buyers to the area are not quite sure what they should be doing.”

The days of sellers settling bidding wars for their homes are gone. So are the sales contracts that were done in minutes or days. The number of realty signs that continue to linger in neighborhoods shows the market is in transition.

In the past few months, home builders are finally beginning to respond by lowering prices to get rid of inventory. Some sellers are finally starting to realize their asking prices are too high and are cutting them. Listings are up considerably and prices have reached a tipping point in sensitive areas, mostly on the outskirts.

The new market requires buyers and sellers to do their homework, industry-watchers say.

US home sales, housing starts seen down in 2006

U.S. sales of existing and new homes and housing starts should substantially fall in 2006 compared with 2005, with some high-cost markets hit hard by rising interest rates, a realtors trade group said on Tuesday.

The National Association of Realtors in a monthly forecast said it expects 2006 sales of existing homes to fall 6.5 percent to 6.61 million units. NAR also said new home sales will drop 12.8 percent this year to 1.12 million units, while housing starts should decline by 9.1 percent to 1.88 million.

The NAR forecasts were the same as last month's for new homes sales. Last month, it forecast that existing home sales would decline by 6.7 percent and that housing starts would fall by 6.8 percent in 2006 compared with 2005.

For the third quarter of 2006, the group estimates existing home sales should drop 9 percent from the same quarter a year earlier.

Despite the dropoff, the group said the pace of both new and existing home sales should remain strong enough to put 2006 on course to become the third-highest year for sales.

It said 2005 was the record strongest year for housing sales and starts.

A recent spike in the supply of homes "has taken pressure off of home prices and has significantly widened choices for buyers," said NAR president Thomas Stevens in a statement.

Last month NAR said the U.S. June inventory of existing homes for sale reached 6.8 months' worth at the current sales pace, the largest since 6.9 months in July 1997.

Some high-cost markets like California, South Florida and Washington, D.C., have been hit particularly hard by rising interest rates, the group states, but strong employment data points to steady demand for homes.