New home sales in April rose sharply due to lower home prices

New home sales in April rose sharply, due to a record drop prices, the US Department of Commerce reports.

According to the report, new-home sales in April rose an unexpected 16.2 percent on record lower prices, which were down 11 percent. It was the largest single monthly surge in new-home sales in 14 years, coupled with a record decline in prices.

New-home sales in April rose at an annual rate of 981,000 units from a revised rate of 844,000 in March, the Department of Commerce said.

It read like a Wal-Mart sales pitch - low, low prices drove home buyers into the single-family home market with the median sales price of a new home falling $28,500 to $229,100 from $257,600 in March, the lowest price since September 2006 and the fast decline on record.

The previous record decline was in 1970.

Housing pundits looked at the results as a potential return to a stronger housing market, but cheap "bricks and sticks" doesn't mean a return to glory for the sector.

Don't expect much from home builder stocks in Friday's closing session, as lower prices could be interpreted to mean lower margins for builders, whose inventory of unsold homes still remains higher than housing pundits would like.

Are Fixed Mortgage Interest Rates Going To Rise Again?

Mortgage interest rates may be on the rise again as Freddie Mac announced Thursday the fixed rate for 30 year loans averaged 6.21 percent nationwide last week, up from 6.15 percent the previous week. Investors may be worried about inflation and the Federal Reserve may raise interest rates.

The Federal Reserve may be hiking interest rates in an effort to slow inflation. At its latest meeting on May 9 the Feds said it still viewed the threat of inflation as a greater risk than the possibility that economic growth might slow too much. The rate was the highest for 30-year mortgages since they averaged 6.22 percent the week of April 12.

Chief economist for Freddie Mac, Frank Nothaft said "As long as core inflation continues to trend downward and economic growth remains sub-par, it is unlikely that we will see any big movement in mortgage rates.”

Are Home Prices Rising Again?

A persistent rise in home prices, even if very small, is a necessary condition for new home construction to start rising again. This would bring back a few speculators, permit some strapped homeowners to sell their way out of a mortgage they can not afford rather than be foreclosed and encourage some households with existing homes that it again safe to list their current home for sale and buy a new home with minimal risk of being stuck with two mortgages for an extended period.

So it was encouraging that first quarter home price reports showed a 3% increase from the fourth quarter both from the National Association of Realtors (NAR) for existing homes and from the Census Bureau for new homes. But a price series generally considered to be accurate reports a 1.4% decline in median home prices for the first quarter (average of January and February only). So it not yet clear if home prices are rising. It is more likely that they are still falling.

The S&P/Case Shiller Home price index avoids the “mix” problem by creating an index from the resale prices of homes that were previously sold. Both the NAR and Census indexes currently have a significant upward bias because relatively few low cost homes have recently been sold after the abrupt tightening of mortgage approval standards for financially marginal mortgage applicants. The repeat sales home price index is used at the Chicago Mercantile Exchange as the basis for futures and options contracts for home prices. Current price quotes for futures contracts show that the financial market expects a further decline in home prices.

Home sales decline in 1st Quarter

Sales of existing homes in the United States continued to decline in the first quarter, but the rate of decline slowed, and fewer states reported sales drops, the major real estate trade group said on Tuesday.

Across the nation, the pace of home sales was down 6.6 percent in January-March from the first quarter of 2006, the National Association of Realtors said. In the previous quarter, sales were down 10.1 percent from a year ago.

The national median existing single-family home price was $212,300 in the first quarter, down 1.8 percent from the $216,100 a year ago, the report said. In the fourth quarter of 2006, the median price fell 2.7 percent.

The real estate group said home prices in most areas showed that conditions are favoring buyers.

The sales pace slid in 33 states in the first quarter, compared with 40 in the prior three months, and cities with a price gain outnumbered those with a decline.

That leveling off and an increase in the number of cities that saw price gains were seen as overall positive.

"The last year-over-year figures were about as bad as they could be" and were bound to improve this quarter, said Mark Vitner, senior economist at Wachovia Securities in Charlotte, North Carolina.

Should You Wait to Refinance?

Mortgage rates have gone up and down, and some speculate that they may drop even lower, but homeowner’s have to consider whether or not playing the waiting game is really wise when it comes to refinancing your mortgage.

While analysts speculate that mortgage rates will remain low, no one is guaranteeing, or even predicting that they will drop lower. While it is not impossible for rates to drop even lower than they already are, it is more likely that they will go up than it is that they will go down. Homeowner’s who wait to refinance with the hopes that rates will drop below the currently low rates may be disappointed and find themselves refinancing at a higher rate than they could have if they would have refinanced now.

At this point in time, when it comes to mortgage refinancing, the early bird really does get the worm. Since it is unlikely that significant rate cuts are in the forecast, homeowners can start saving money sooner by refinancing now. For each month that a homeowner does not refinance, that is another month that they are throwing more money away in interest and less at the principal of their mortgage. Since significant savings are to be had as a result of refinancing a high-interest rate mortgage to a lower interest rate, it only makes sense to take advantage of these savings sooner rather than later. And if saving money sooner is not an incentive, homeowners should think of the money they could be risking if rates suddenly increase and they lose the window of opportunity to refinance at a lower rate. It is important to lock in the low rates now to avoid a lost opportunity if rates do indeed increase.

While no one can tell you when it is the right time for you to refinance your home, if the only thing that has you waiting is the thought that mortgage rates might drop even lower, you may want to rethink that decision and take advantage of the already low rates that are available to you right now.

Mortgage Madness vs. Predatory Lending

Congress is taking aim at the mortgage industry and, as usual, will probably hit the wrong target. Real estate loan foreclosures are at record levels, lowering home values and posing a threat, many say, to our consumer driven economy. Homes constituting the largest asset by far for most Americans, a drastic decrease in their market value has a dampening effect on spending because homeowners feel less wealthy.

Some anguished homeowners with adjustable rate mortgages are burdened with increased mortgage payments they cannot afford. Faced with losing their homes they are demanding relief. Since lenders aren’t much into the business of granting relief to their overextended borrowers, who else to turn to but good old, magnanimous Uncle Sammy. The Democrat-controlled Congress appears only too willing to ride to the rescue with bail-out money. Why not? It’s not their money.

First of all, I don’t want to trivialize the tragedy involved in losing one’s home, whatever the reason. Anyone facing that deserves sympathy. But should the taxpayers be asked to provide monetary assistance to those whose bad judgment caused them to incur obligations they should have known they couldn’t meet under foreseeable circumstances?

It is argued that government bailouts have rescued failing corporations in the past so why not provide some help to beleaguered homeowners? In the case of corporations like, for example, Chrysler, it was concluded that the loss of a major employer and key player in a vital industry could be damaging to the national economy. It is a stretch, however, to apply such an argument to the mortgage foreclosure crisis. Home prices are still so inflated that a huge percentage of households remain priced out of the market. And how can the government really hope to protect people entirely from their own poor financial decisions? And if the government stepped in here, where would it end? The average American household is also saddled with heavy credit card and installment debt, driving many into bankruptcy. Should the government step in with financial aid here?

A better approach is through public education, vigorous regulation of the credit industry and strict enforcement of existing laws on predatory lending and debt collection. I submit that excess consumer debt, not mortgage debt, poses the greater threat to Americans. The first bill most Americans pay each month is their mortgage payment. Their most important asset is their home and they will typically forgo anything to avoid putting it at risk. Nor are lenders eager to foreclose. Performing loans are their principal assets. They do not wish to be in the property management business and will usually dispose of repossessed homes at far below their market value.

Credit card and installment debt are quite another story. Given the profusion of these accounts and the disgraceful ease with which credit cards are given out, many Americans quickly get in over their heads. Incredibly, even for many of those who are already behind in payments, each day’s mail will continue to bring new credit card offers. Interest rates sometimes exceed 20% and are often increased after a single late payment. Easy credit has caused Americans to become addicted to debt. Once delinquent, the consequences can be severe. Credit card issuers are quick to turn accounts over to collection agencies which, because they get to keep half or more of what they collect, can be ruthless. In attempting to track down deadbeats, they sometimes harass innocent parties, some the victims of identity theft. These collection vultures, some of which are law firms specializing in debt collection, can be relentless in hounding even innocent parties at all hours, seven days a week, sometimes even after it has been verified that they are calling the wrong party, in violation of the Fair Debt Collection Practices Act.

A front page feature story in the April 28 edition of The Wall Street Journal by Ellen E. Schultz reports on some of the egregious acts of harassment by debt collectors, targeting, in particular, elderly social security recipients whose bank accounts containing direct deposit social security payments were garnished in violation of the law. A companion article reveals that many banks believe they have no duty to help protect their customers against this outrage, notwithstanding the fact that California law prohibits banks from freezing the first $2425 of any individual’s account that receives social security checks, according to Schultz. The problem is that the law is not aggressively enforced and unwitting citizens are mostly unaware of it. And, reflecting an attitude that has become all too familiar in our society, some banks say it’s not their problem.

Does government have a role here? You bet it does. Laws against predatory lending practices, the theft or careless handling of personal data and abuses of the Fair Debt Collection Practices Act must be vigorously prosecuted by the government. Since the average citizen hasn’t a clue how to proceed when victimized, it is incumbent upon the government to be proactive, to educate the public on how to obtain assistance and to provide a hotline manned by real people living in the United States. The government should also act to disabuse banks and other financial institutions of the notion that they can ignore the law and that their obligation to customers ends with receipt of a garnishment notice. And by vigorous prosecution, I mean something more than a fine that gets charged to the cost of doing business.

What can you do? I’m not a lawyer and I don’t give legal advice, but you might begin by reading the articles cited above. Reprints can be obtained from The Wall Street Journal. Second, if you receive social security or veterans’ benefit checks by direct deposit, ask your financial institution what their policy is on garnishing accounts containing such funds. You could be wrongly targeted by a collector or a victim of identity theft. Third, write a letter and send signed reproductions of it to your U.S. and State Representatives and Senators, and to your U.S. and State Attorneys General demanding they take action to protect American consumers against these problems which daily grow more serious.