Lending Crunch Looms Over Housing
By Don Hogsett -- Home Textiles Today, 5/21/2007 12:00:00 AM
An intractable, balky housing market remained just that in March, sputtering ahead in fits and starts when it wasn't actually declining. The market was hit hard as lenders tightened credit standards amidst mounting defaults in the sub-prime lending industry that targets higher-credit-risk consumers.
Sales of existing homes, the largest slice of the housing pie, accounting for almost three-fourths of all activity, fell by 8.4% to a seasonally adjusted 6.1 million units. Resales are now down 11.3% from their year-ago level of 6.9 million units. Sales of existing homes declined in every region of the country, with the Midwest hardest hit, down 10.9%.
The decline was solely based in the single-family home segment, which fell by 9.5%, while sales of condos held steady.
Elsewhere, the numbers looked better — but only if you didn't look too close. A case in point is housing starts, which edged ahead by 0.8%, to 1.5 million units. But starts improved only because of a huge 44.5% increase in the Midwest. In the nation's other three regions, starts fell back, by 7.7% in the West; by 6.1% in the Northeast; and by 2.7% in the South. Measured on a year-over-year basis, starts are now down 23.0% from their March 2006 level.
Ditto new home sales, which rose by 2.6%, snapping a two-month slide. But once again, the total was pumped up by a 50.0% gain in the Northeast, and a smaller 9.8% increase in the Midwest. Sales continued to edge off in the South and West, down 2.7% and 0.9% respectively. And over the past 12 months, new home sales have fallen by 23.5%, from a level of 1.1 million units last March.
Scoping out the drop in sales of existing home sales, David Lereah, chief economist of the National Association of Realtors, said weather may have been partly to blame, along with the shake-out in the sub-prime market. "It's too early to measure a significant impact from tighter lending standards, which should moderately dampen activity," he said, "but we're still looking for existing home sales to gradually improve during the last half of 2007."
Looking at the market for pricey new homes, March numbers, even if up 2.8%, were "quite disappointing, considering the weather-related weakness recorded earlier this year," said David Seiders, chief economist of the National Association of Home Builders. "We gained back only a small fraction of the January-February loss." Seiders also pointed to the sub-prime lending market crunch: "Builders are reporting direct impact on both sales and cancellations as prospective buyers are unable to get mortgage credit or are unable to sell their existing homes because of credit tightening."
Seiders added, "The sudden tightening of mortgage conditions has had a profound impact on the housing market, and it is hard to know how far the credit pendulum will swing." He said a forecast by the home builders' trade group "still shows improvements in home sales and housing production by the second half of this year, although these forecasts are subject to an unusually wide range of risk."
Housing By Region
Month-To-Month % Change, March 2007
|EXISTING HOME SALES||HOUSING STARTS||NEW HOME SALES|
|Source: U.S. Department of Commerce and National Association of Realtors
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