6/23/10 - With the housing market a cornerstone of the economy, the economy is standing on shaky ground and record low mortgage rates aren't helping shore things up.
From April to May this year, new-home sales crashed nearly 33 percent, tumbling to a record low annual sales pace of 300,000 homes, according to the Commerce Departmentthis week.
In May this year, new home sales were down 18.3 percent from May 2009.
Sales of previously owned homes also fell, by 2.2 percent from April to May, the National Association of Realtors also reported this week.
Fortunately, year-over-year existing home sales were up more than 19 percent, NAR reported.
"We are witnessing the ongoing effects of the home buyer tax credit, which we'll also see in June real estate closings," said Lawrence Yun, NAR chief economist.
"However, approximately 180,000 home buyers who signed a contract in good faith to receive the tax credit may not be able to finalize by the end of June due to delays in the mortgage process, particularly for short sales," Yun added.
The median U.S. home price for existing homes in May, $179,600, reflects a nearly 3 percent increase from a year ago, but it remains 22 percent down from the $230,000 median peak set back in July 2006, according to NAR numbers.
NAR said pending home sales are expected to decline notably in May and June from the spring surge. Yun added that job growth and a manageable level of foreclosures are keys to sales and price performance during the second half of the year.
The national rate of unemployment remains near 10 percent and lenders rarely write mortgages for the unemployed.
As the federal home buyer tax credit ended, foreclosures also continued to prey on the market and are expected to reach 1.9 million this year after a record 2 million in 2009 according to Moody's Analytics Inc.
With homes lost to foreclosure and tough lending standards, the rate of homeownership has dwindled to it's lowest level in a decade.
The 67.1 homeownership rate in the first quarter this year was the lowest its been since the first quarter of 2000, according to U.S. Census. The rate peaked at 69.2 percent in the second quarter 2004.
Other government bailouts for homeowners either aren't working or have also expired.
Global rating agency Fitch Ratings recently reported that 65 to 75 percent of mortgage modifications are likely to fail within 12 months, because other debts owed by homeowners remain in place and untouched.
The Federal Reserve, in March, ended it's $1.25 trillion program to buy mortgage-backed securities. The program is credited with helping push the average U.S. 30- year fixed-mortgage rate to an all-time low of 4.71 percent in December.
Combined sales of new and existing homes will drop from 7 to 12 percent in the third quarter from the second quarter, according to forecasts by Freddie Mac and Fannie Mae.
Others say they could fall by as much as 17 percent with home values due to suffer another 13 percent hit.
A true, full housing recovery may be a decade away.
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