Home Sales Down, NAR Blames Lending Standards

Sales of existing U.S. homes fell 9.6 percent in February, according to the National Association of Realtors, the first drop in three months. The NAR is pointing its finger at lenders’ strigent loan standards as the reason for the continued housing market woes.

“Housing affordability conditions have been at record levels and the economy has been improving, but home sales are being constrained by the twin problems of unnecessarily tight credit, and a measurable level of contract cancellations from some appraisals not supporting prices negotiated between buyers and sellers,” said Lawrence Yun NAR chief economist. “This tug and pull is causing a gradual but uneven recovery.”

Sales dropped to an annual rate of 4.88 million, down from January’s 5.40 million. The pace is down 2.8 percent on a yearly basis as well. Investors and all-cash purchases continue to make up a significant chunk of the market share. This has been contributing to the falling median house price, which sank to $156,100 in February, a 5.2 percent drop from a year ago. Again, the NAR blames the lending standards.

“The decline in price corresponds to the record level of all-cash purchases where buyers – largely investors – are snapping up homes at bargain prices,” Yun explained. “We’d be seeing greater numbers of traditional home buyers if mortgage credit conditions return to normal.”

Mortgages do remain very affordable, at least for those with good credit. According to Freddie Mac, the national average interest rate on a 30-year fixed rate loan remained very comfortably under 5 percent in February. Unfortunately for the housing recovery, these days it seems there is not much leeway for borrowers with less-than-perfect credit, and only those with great scores and a wad of cash are breaking into the market. This may in fact be the most prudent way to lend mortgage money but it translates into a slow and painful recovery.