Home Sales Take a Hit

[Jul 5, 2007.]

Confidence among American home builders appears to be eroding. That's because house sales are apparently suffering from the one-two punch of stricter lending practices and increasing mortgage rates.

That, at least, is the viewpoint of the National Association of Home Builders.

The association's market index dropped two points to 28 in June. That's the lowest figure recorded since February of 1991, when the index sunk to an abysmal 27.

An economist of Bank of America Securities, Matthew Moore, was quoted in a published report as saying, "It means that the housing market downturn has a long way to play out." That's disappointing news for both home builders and prospective home buyers and sellers alike.

Meanwhile, the association's chief economist, David Seiders, was quoted as saying, "It's clear that the crisis in the subprime sector has prompted tighter lending standards in much of the mortgage market, and interest rates on prime-quality home mortgages have moved up considerably during the past month along with long-term Treasury rates."

The association predicts that home sales will decline "somewhat further." Another disappointing prediction: an upsurge in housing starts is probably not going to happen until early 2008. As a result, economic growth could feel the effects of the housing downturn throughout the rest of the year.

The association's president, Brian Catalde, said, "Builders continue to report serious impacts of tighter lending standards on current home sales as well as cancellations, and they continue to trim prices and offer a variety of non-price incentives to work down sizable inventory positions."

Home builder confidence has declined each month since February. Homebuyer defaults and foreclosures appear to have exacerbated the problem. In June of 2006, the index reached 42, compared with the most recent rate of 28. Because of high inventories and an increase in mortgage rates, the housing downturn is expected to continue for the foreseeable future.

Julie Ann Amos
July 5th 2007
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