But still down from last year:
Sales of new homes in the United States posted their largest monthly gain in eight years in June, the government reported on Monday, a sign that the housing market is bottoming as buyers take advantage of lower prices.
The Commerce Department reported that new single-family home sales rose 11 percent in June, an increase that dwarfed economists’ expectations of a 3 percent increase. The pace of home sales rose to a seasonally adjusted rate of 384,000 a year, the highest level since November.
Despite the monthly increase, sales of new homes were still down 21 percent from June 2008, and the market is still swamped by a glut of for-sale houses and foreclosed properties.
I guess they have no way of knowing right now, but I’d like to know what kind of loans are being made for these home sales. Considering what one of the larger causes of the last two years of hell was bad loans, that seems relevant.
Shalimar
Strictly anecdotal local evidence, but I have heard realtors around here bitching about how hard it is for their customers to get approval for loans now compared to the way it was a few years ago.
br
Awesome useless singleton data point: I just bought a house, put 20% down, and got a 30 year fixed mortgage at 5.05%.
Lenders are totally afraid of doing anything else right now. And the appraisal process has become a bit of a roll of the dice now that lenders can’t hand pick their appraisers to pump the prices.
All in all, heading back towards the way things should be.
cmorenc
This is indeed a situation rife with possibilities for pursuit of one government/business/social goal to wind up working blindly (in some cases with wilfull blindness) against another one. Get housing and the economy moving again! Especially by two or three months before the 2010 midterm elections! Reform the banking/mortgage/lending markets with sound regulatory requirements to prevent unsound loans and housing bubbles from recurring! All at the same time!
Problem is, those with primary responsibility for trying to make one of these goals happen arent’ necessarily the same folks with primary responsibility for making the other happen, and the folks with legislative/adminstrative power over both are mainly focusing on whichever one seems the most momentarily pressing issue! (It’s the economy and the elections, stupid!)
PeakVT
The margin of error on this report is ridiculous.
Michael D.
I doubt too many interest only loans are being made. My loan person at Quicken says they don’t touch those anymore and you have to have a decent downpayment.
Since housing prices are much lower now for these homes, I expect they’re much closer to what the buys of them can really afford than, say 2-5 years ago.
BombIranForChrist
Anecdotally, I am looking to maybe think about buying right now, and am going through paperwork with the bank. I have fantastic credit + no debt, and it is a giant ass pain to get a loan right now. We applied before the bubble burst, and even though we are in better financial shape now than then, we are getting a much smaller loan this time. And the paper work is much, much more onerous.
But, you know, I am not really complaining. It actually makes me feel pretty good about doing business with a bank that seems to have learned something.
Punchy
@Shalimar: Translation: How unfair that my prospective clients have to actually document that they make the money they just lied about making!
Charity
Slightly different, but we just refinanced our mortgage. We rolled our 6.125% mortgage and our HELOC into one 30-year fixed 5% loan. Hubby started the inquiry online, and the process went pretty well. I guess it helps that we have credit scores of 794 and 805.
Dreggas
well I haven’t bought a home but have been able to get an auto loan to buy a car (0% down, 10% interest, full funded loan for 8.5 grand and only 175 a month payment) and a personal loan to consolidate and pay off a bunch of things for only 212 a month without too much hassle. Of course I have good credit. People can and do qualify for the loans, banks are also selling off homes they own for pennies on the dollar in my area so it’s no surprise that sales are up. Now that the market is deflated due to the bust as well as surplus number of homes available it’s no surprise that people are getting them.
Housing is one area where buy low, sell high works for the most part and the reality is, if you can do it, getting a home now is not a bad idea.
Dreggas
@BombIranForChrist:
Not having debt, ironically, makes it harder to get financing. I know when I went and bought my car as well as when I went and got the personal loan the one thing everyone said was that I could have got a better deal interest-wise, and would have been approved easier if I had more credit card debt.
Foxhunter
@br:
That just about sums it up. Boutique loans are gone for the most part unless FICO is 700+ (maybe even 750+). Then you are only going to get 5/1 ARMs and the like. I don’t know anyone doing interest only.
I just sold and bought…the lender wanted nothing less than underwriting requirements of the archaic 1980’s. 20% down, solid credit, appraisal, fully disclosed pay with stubs and w-2. It’s almost like they actually cared if I was going to be a good risk or something, unlike my last mortgage app process which felt like a stint on TPIR.
BombIranForChrist
@Dreggas:
DAMMIT.
I do put a lot on a credit card in order to get miles, etc., but I always pay it off every month. Maybe I should just put the house on the credit card … anyone know of any houses I can get for 10-20k?
Bill H
Sales are up in San Diego, but foreclosures are up even more; 150% over last year, and last year was a bad year for foreclosures. More homes were notified of default than were sold.
Walker
@PeakVT:
Absolutely. We saw this same crap in 2008 when they were denying that the market was crashing. Look at it again in two months.
Walker
As CR loves to point out, bottom in sales bottom in price. Even if we are looking at bottoming in sales (and this margin of error is telling us nothing), we will not see prices bottom for at least 2-3 more years.
Now is not the time to buy. The rent-purchase multiples are still way too high. You will be throwing your money away each month to buy instead of rent (yes, I did mean it that way).
RandomChick
I was not approved by my credit union due to debt/income ratio, which infuriated me. I’d done business with them for almost a decade and never missed a payment.
I told them I’d be sure to tell my kids that education wasn’t important as student loans were obviously a bad investment.
However, I was able to immediately get an FHA for 3 1/2% down and 4.85% interest through a mortgage broker.
I understand that credit unions are proud they didn’t get into sub-prime, but I hated being reduced to an inflexible number. There should be some room for qualitative information about applicants.
Walker
Speaking of rent-purchase multiples, there was an interesting article recently on Geithner’s inability to sell his house. This is a great example of rent-purchase:
* He is asking for $1.575 million.
* He is renting it for $7500/month.
The old guard from the 80s say you should never buy for more than 120x monthly rent. With lower interest rates (but less to deduct…) this multiple can be higher, but certainly no more than 180x.
* 180 x 7500 = $1.350 million
Geithner needs to drop his price at least $225k.
Edit: Whoa. Funky mark-up.
Tsulagi
Yeah, wonder how much of that increase is lenders unloading properties they’ve had for awhile. Summer would be the best time to do it.
Heard a really sad story this weekend from a friend of mine. One of his neighbors I’d met, actually ex-neighbor now, had bought their home 2-3 years ago at about the peak of inflated prices in his area. They paid $1.2M for their house putting 500k down from the sale of their previous home and other money thinking like a lot at the time real estate could only go up. Then they borrowed on the equity for some home improvements and other things.
Late last year the neighbor guy lost his well-paying job. House prices had been declining and the couple were then underwater on house to loan value. Then they either gave the house back to the bank or they were foreclosed on.
My friend saw the family back in the house recently and thought they’d made some deal with the bank. Apparently not, two weeks ago he saw police at the house and the couple were led out in handcuffs. At least the police were decent enough to wait until someone came, not Child Services, to pick up their kids. That sucks.
PeakVT
@Tsulagi: This is why the Baker-Samwick plan is such a good idea (I’m assuming they were arrested for living there illegally and not mortgage fraud or something else.)
terraformer
Loans probably aren’t being used at all, for the most part.
Instead, I’d suggest that many homes are being bought by the top 1-5%ers of income, so that they can benefit down the road.
That is, the market will pick back up again (sometime, hopefully), and it’ll be those who have the properties to sell–and who can afford, comparatively, to ‘sit’ on them for however long it takes–who will reap the benefits. And the rich get richer, and the middle class shrinks more and more, and the feudalistic endgame comes to fruition.
(adjusts tin foil hat.)
Martin
That’s not exactly correct.
You need to show that you can borrow and repay – even short-term. Credit cards without revolving debt works *provided* you can move some serious dollars through there now and then.
We’ve never had carryover credit card debt and never had a car loan and our FICO has been over 800 for a decade. But during that time we’ve put $10K or $20K on our credit cards in a month and paid them off by the cutoff. If you have low-limit credit cards or have high-limit but never carry large balances, even for a few weeks, then you’ll have trouble showing you can manage a large credit load.
Also, we don’t know anyone who’s gotten anything short of a traditional loan recently, and that’s in the place that invented all of this subprime shit. Also, nobody is offering up no-cost refi’s either.
Jonny Scrum-half
I’m no real-estate expert, but when home sales are down from the same month in the previous year, I don’t see how it’s accurate to say that “home sales” are “up.” My guess is that June home sales normally are greater than those in May, so any “increase” month-to-month is meaningless unless compared to the previous year’s data point.
Walker
@Jonny Scrum-half:
It is not completely meaningless. They do have methods for seasonal adjustment because the seasons are very regular (purchasing in the summer is always tied to school enrollment deadlines). However, that is the point of the margin of error. And as remarked earlier, margin of error makes this particular month-month worthless.
Martin
Credit unions generally don’t sell their loans. They hold them to generate revenue to cover the interest they pay you for saving. Depending on the size of a credit union, a handful of bad mortgages can break it.
My dad was CEO of his relatively tiny credit union for a number of years and during that time a senior VP of the company the credit union served came in for a home loan and didn’t qualify. The staff kicked it up to him being a sensitive matter, and he had to explain to the VP that if he defaulted on the $2.5M loan, the credit union would probably never recover. In order for them to even consider a loan that big, the borrower would have to have a shit-ton to fall back on and this guy just didn’t. He was a good but not a great risk, and a larger bank could better afford that kind of risk. The guy got an equally good loan at a larger outfit and was happy, but he wanted to support the credit union knowing that they were trying to grow.
My dad explained to me that given the size of the credit union, they needed to get into mortgages in order to grow, but the mortgages they wrote had to be near-perfect borrowers, and there’d be a limited number of mortgages they could carry until they got larger.
Martin
In a bad recession, even normal seasonal gains don’t happen, so any kind of improvement, even one that should have otherwise taken place is good news. Doesn’t mean the market is recovering, but it might mean the market has stopped getting worse.
We’ll see.
Johnny B. Guud
This is akin to a raindrop in a hurricane really.
Credit continues to be relatively cheap and there is a massive amount of inventory on the market right now, and like the article notes, homes for sale are on the market for a year vs. six months a year ago. Unemployment rising above 10% won’t help matters much, and a few states have recorded all time high unemployment rates for their respective states.
The FDIC just closed another 7 banks this past weekend, which brings the total of closed banks near 100 for the year, and that’s the second time in 2009 that seven banks have been seized on one weekend.
Read The Lords of Finance, about how the central bankers of the world completely ignored or were too oblivious to see the impending Depression. Even as late as 1931, two years after the stock market crash, they had no clue what was coming. In the interim, the stock market had bounced back, various economic indicators were “improving” and our leaders were telling us that the good times were back.
Reality check folks….
Bilbo Baggins
20% down, 15 years @ 4.75%; 1 point. But that required proof of employment, etc. and a decent credit score I suppose (which I do not know, nor care to).
White House Department of Law (fmrly Jim-Bob)
Jobs creation is a lagging indicator, so it’s probably all those people who expect to get work in the coming months or years who are going all-in and buying a house.
/rolls eyes.
One or two months do not a trend make. Declining inventories likely are the result of people taking their houses off the market to “wait out” the storm. What’s moving houses is that sellers who dug in their heels waiting for ’05-’06 prices have finally relented a bit. But we’ve still got a round or two of rate resets, and the specter of higher interest rates to do drive up supply and curb demand.
We’re nine years and nine months out of the stock bubble deflating, and still miles away from where we started, in real AND adjusted terms. The last housing bubble burst in ’89. Prices fell for about fifteen quarters (bottom called in ’93) , and then stayed flat for another twenty (last run-up started in late ’98).
So, yeah, sure, after the biggest fucking asset bubble ever deflated, and at a time when people are afraid to purchase both macaroni AND cheese, the housing market is set to come roaring back after only seven or eight quarters of decline.
White House Department of Law (fmrly Jim-Bob)
15: Exactly.
And HHI-to-costs ratios (number of years’ income/purchase price) are still seriously out of whack. With wage stagnation a reality, that ratio shows little sign of improving in the short-term, which adds to the downward momentum of house prices.
Percentage of take-home pay given over housing costs has to go down–or we could take a page from Japanese banks’ book and offer 100-year mortgages to mask unaffordability…
Walker
@White House Department of Law (fmrly Jim-Bob):
The miracle of compound interest makes the monthly payment of a 100 year mortgage (or even and infinite year mortgage) not that much less than a 40 year mortgage. The only difference is that you do not pay off the principal.
Nathanael
I’m going to lay bets these were the people saving their money to buy a house they could actually afford; because prices were so ludicrously high until now they wouldn’t have done it.
Having done so, this will have little or no effect on the economy. There just aren’t that many people in that position.
Oh, plus speculators. There are a lot of speculators in wrecked abandoned houses.
Whether this will be a good deal for them? All real estate is local. Depends.
The Cat Who Would Be Tunch
@Punchy:
Word, it was pathetic how easily so many people “qualified” for home loans that no sane underwriter would have approved during the peak of the housing bubble.
As far as the state I live in, yes, the standards for receiving a mortgage have gone back to some levels of sanity. The reason I say “some” is because whereas before the standards for getting loan was too lax, the pendulum has swung the other way where it’s quite frankly a little ridiculous how much paperwork you need to qualify for a decent loan. Typical human reaction – care too little when it counts and care too much when it’s too late.
It should be noted that had the approach for the mortgage originators been to take extreme caution as opposed to stupidly lax, we’d be far better off.