housing

The U.S. housing market performance is one of the most important indicators of the nation’s economic well-being. According to a report by Associated Press reporter Derek Kravitz posted January 26, 2012, “Fewer Americans bought new homes in December. The decline made 2011 the worst year for new-home sales on records dating back nearly half a century.” This report also provides detailed information from the Commerce Department on the dismal new homes sales figures for 2011.

The Commerce Department said Thursday new-home sales fell 2.2 percent last month to a seasonally adjusted annual pace of 307,000. The pace is less than half the 700,000 that economists say must be sold in a healthy economy.

About 302,000 new homes were sold last year. That’s less than the 323,000 sold in 2010, making last year’s sales the worst on records dating back to 1963. And it coincides with a report last week that said 2011 was the weakest year for single-family home construction on record.

New homes sales were dismal despite the record low mortgage rates that are available to consumers. As reported by Daniel Indiviglio for The Atlantic.com posted back on September 21, 2011, the Fed decided to take actions would keep mortgage rates low for the foreseeable future.

To support a stronger economic recovery and to help ensure that inflation, over time, is at levels consistent with the dual mandate, the Committee decided today to extend the average maturity of its holdings of securities. The Committee intends to purchase, by the end of June 2012, $400 billion of Treasury securities with remaining maturities of 6 years to 30 years and to sell an equal amount of Treasury securities with remaining maturities of 3 years or less. This program should put downward pressure on longer-term interest rates and help make broader financial conditions more accommodative. The Committee will regularly review the size and composition of its securities holdings and is prepared to adjust those holdings as appropriate.

To help support conditions in mortgage markets, the Committee will now reinvest principal payments from its holdings of agency debt and agency mortgage-backed securities in agency mortgage-backed securities. In addition, the Committee will maintain its existing policy of rolling over maturing Treasury securities at auction.

This action by the Fed to keep interest rates at the lowest possible rate is being dubbed Operation Twist. The process will involve a shuffle and swap of Treasury securities “over the next nine months or so” according to the report.

Is There Any Optimism For the Housing Market in 2012?

There are some signs the housing market will soon bottom out and begin the slow climb back to acceptable levels. In a report for Huffington Post.com, Loren Berlin quotes Tom Lawler a former Fannie Mae employee of 22 years as saying,

“The job market has been terrible, and it hit younger people very hard,” he said. “As a result, we’ve seen more young people staying in school, or moving home with their parents, or sharing a place with roommates. But those aren’t permanent situations. Instead, it suggests an emerging, pent-up demand because they are going to ultimately form their own households.”

There are other people in the housing industry such as Jay Hummer, Executive Vice President of RE/MAX of New England who agrees with the assessment of a slow gradual recovery of the housing market. Mr. Hummer’s assessment of a slow recovery period was reported by MarketWatch.com on January 19, 2012; “However, barring a financial catastrophe in the marketplace, it appears that we’ve hit the bottom, and we can expect to see a very slow and very gradual increase over the next couple of years.”

The California Association of Realtors is forecasting a slight increase of “one percent” in 2012 home sales. All of these dismal forecasts may provide an unparalleled opportunity for people to purchase a new home in 2012. If the economy can continue to create new jobs, and interest rates do indeed stay low, some of the pent-up demand for home purchases should begin to drive the market in the right direction. The recovery may begin with the glut of existing unoccupied homes that are on the market. The record pace of foreclosures has created a large pool of pre-owned homes that banks and mortgage companies may be willing to sell at bargain prices to qualified buyers. The key for young families to remember is that some of the easy mortgage qualification opportunities of the past no longer exist. Banks are looking for buyers who can show job stability, acceptable debt to income ratios and credit scores at or above 720.