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Home sales drop more than expected
A "For Sale" sign hangs in front of a home in Naples, Fla.
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Kai Ryssdal: The National Association of Realtors reported today existing home sales fell more than 2.5 percent last month. That's more than twice as bad as analysts were expecting.
Marketplace's Amy Scott explains how they got it so wrong.
Amy Scott: Nobody expected the housing market to suddenly bounce back, but the size of June's decline in home sales caught Celia Chen off guard. She's director of housing economics at Moody's economy.com.
Celia Chen: I thought that the numbers would be slightly higher than they came in, predominantly because we've been seeing a lot of foreclosure home sales and I thought that that would push up the numbers a bit.
Home sales did increase in some places hard hit by foreclosures, cities like Fort Myers, Florida, Sacramento and Las Vegas.
Lawrence Yun is chief economist with the National Association of Realtors. He says the trouble is sales fell in places you might not expect.
Lawrence Yun: Houston, Dallas, Kansas City, Atlanta... these are affordable markets. These are the markets with strong local job market conditions. We are seeing a droppage in home sales activity.
Yun says that's because many would-be buyers are waiting on the sidelines to see if prices come down even more. He says tighter lending standards mean some people can't get loans.
Christopher Thornberg with Beacon Economics says factor in the softening job market nationwide and the sales declines are no surprise.
Christopher Thornberg: Add it up: Weak economy, weak financial system and a housing market that still has some ways to go till it resembles something stable and there's no reason in the world to expect any kind of recovery in the housing market right now.
There may be some reason. The housing bill President Bush is expected to sign includes a $7,500 tax credit for first-time home buyers. The Realtor Association's Lawrence Yun says the extra cash may be enough to push some of those fence-sitters into the market.
In New York, I'm Amy Scott for Marketplace.
Enio is right. There is a reason why lenders used to require that your total principal, interest, property taxes and insurance cannot add up to more than 28% of your gross monthly income. The reason is so that they can be sure the buyers can actually afford to keep paying their mortgage. Look what happened when lenders abandoned the old 28% rule -- tons of foreclosures! Not to worry, the lenders are quickly returning to reasonable standards (such as the 28% rule).
House prices have no choice but to keep falling until they are in line with buyers' incomes, especially with much higher mortgage rates coming within the next couple of years.
