Home Sales Plummet And Prices Slide In July

August 25th, 2010

Late August figures from the National Association of Realtors and and the Commerce Department show a retreating housing industry. With summer winding down, so is the traditional home buying season–and the fall forecast is not good. If you have been using a free mortgage calculator to determine your home purchasing power or mortgage refinance savings, there is a good chance your figures are a bit lower today than a few weeks or month ago as prices slipped, rates dropped, and sales plunged through July.

Existing Home Sales Record Drop

The National Association of Realtors (NAR) reported on August 24th that July sales of existing homes dropped 27.2% from June. The drop is the third month in a row that new home sales have declined since the expiration of the first time home buyer tax credit in April. According to the NAR, July sales show a seasonally adjusted annualized sales rate of 3.83 million existing homes. This annualized sales rate is the lowest since the NAR started keeping track of home sales in 1999.

Accompanying the July drop in sales was a decline in median home prices, which dropped 0.2% from June to a median of $176,000 nationally. Compared to a year ago, prices are hanging on, up 0.7% from July 2009, but the slow down in sales has many concerned that another price correction could be on the way for residential real estate. With sales slowing, inventory is starting to build once again; as inventory builds, more pressure is created for sellers to lower their prices. So far this year, many sellers are sticking to their asking prices. But the question remains: Can they hold out until their properties sell?

If you have been using a free mortgage refinance calculator to determine your potential monthly savings with a refinance mortgage, keep in mind that a critical aspect of your refinance transaction is the appraised value of your home. If the prices in your area start to soften again, your loan-to-value, and therefore interest rate, may be affected. If your current loan-to-value is close to 80% (or another interest rate threshold), you might consider refinancing now, while you can still maintain the value you need to close successfully.

New Home Sales Cold In July

Not to be outdone by the record low July existing home sales reported by the NAR the day before, the Commerce Department reported August 25th that July new home sales dropped 12.4% from June to 276,000 units. New home sales thus set a record as the lowest since the Commerce Department began tracking new home sales in 1963. Home builders are now sitting on approximately 10 months of inventory; at this level of inventory, builders may start to roll out larger incentives to entice buyers into their models and onto contracts.

A year ago, the news was the slow rebound in new housing, with sales reaching only 400,000 per month compared to one million sales per month during the new home heyday earlier in the decade. At one-quarter the volume of four or five years ago, home builders are now facing even more stark shortages of buyers.

Take Action Today

With mortgage rates continuing to creep down even further, home builders and real estate professionals are scratching their heads as to why buyers are not taking advantage of the perceived bargains in this slow market.

If you have done your homework using a free mortgage prequalification calculator and are in a position to purchase a new or existing home, recent data from the National Association of Realtors and Commerce Department suggests you are also most likely in a strong negotiating position vis-a-vis home sellers. Take advantage of that strong negotiating position today.

Posted By :
Dennis C. Smith is co-owner and broker of record for Stratis Financial in southern California. He has over twenty years' experience in the mortgage industry.

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