U.S. home prices tumbled to a two-year low in the first quarter, with declines in almost half of U.S. cities, the National Association of Realtors said.
The median price for houses and condominiums slid 1.8 percent to $212,300 in the first three months of this year, the lowest since the first quarter of 2005 when it was $199,700, the Chicago- based real estate trade group said. The median price for a single- family home fell in 62 of 145 metropolitan areas.
Tumbling prices sparked an increase in sales as bargain shoppers snapped up the cheaper properties. Seasonally adjusted, home sales rose 2.4 percent to an annualized 6.41 million from 6.26 million in the fourth quarter, the association said. Compared with a year earlier, the number of sales fell 6.6 percent.
Let's coordinate this data with some other news from the lending front.
U.S. banks dramatically tightened their standards for approving residential mortgages in the first quarter, the Federal Reserve said Monday
In particular, banks made it harder to get subprime residential mortgage loans and nontraditional loans such as interest-only loans, the Fed reported.
All told, at least 23 of the 53 domestic banks surveyed, or 43%, tightened their mortgage lending standards, up from 16% in the fourth quarter. The latest data are not strictly comparable to previous numbers, because the Fed has changed the wording of its questionnaire. Read the Fed survey.
In its quarterly senior loan officer survey, the Fed said 31% of banks surveyed "considerably" tightened credit standards for subprime loans, while 25% of banks tightened those rules "somewhat." None eased standards.
Prices are dropping for two reasons.
1.) There's a ton of supply on the market still. In my neighborhood there are 5 vacant houses that I know of. I realize that's an informal survey of a small neighborhood in Houston, Texas, but it's indicative of what's happening at the macro-level. It's going to take a larger price drop to get things back to normal.
2.) It's harder to get a bank loan now. A small majority of banks tightened lending standards and none loosed standards. This means banks understand they are getting hurt from their looser standards of the last few years. As loans dry-up, demand will drop, which means there is added downward pressure on home prices right now.
The above factors played into another decline in builder confidence:
Ongoing concerns about subprime-related problems in the mortgage market caused builder confidence about the state of housing demand to decline three more points in May, according to the National Association of Home Builders/Wells Fargo Housing Market Index (HMI), released today. With a current reading of 30, the HMI has now returned to the lowest level in its current cycle, which was previously hit in September of 2006.
“Builders are feeling the impacts of tighter lending standards on current home sales as well as cancellations, and they are bracing for continued challenges ahead,” said NAHB President Brian Catalde, a home builder from El Segundo, Calif.
“The crisis in the subprime sector has infected other parts of the mortgage market as well as consumer psychology, and as a result the housing outlook has deteriorated,” added NAHB Chief Economist David Seiders. “We’re now projecting that home sales and housing production will not begin improving until late this year, and we’re expecting the early stages of the subsequent recovery to be quite sluggish. There still are tremendous uncertainties regarding our baseline forecast going forward, owing largely to the subprime crisis that is having widespread effects throughout the mortgage market.”
All three component indexes declined in May. The index gauging current single-family sales slipped two points to 31, while the index gauging sales expectations for the next six months fell three points to 41 and the index gauging traffic of prospective buyers fell four points to 23.
As I've been saying for about a year now, we're nowhere near the bottom in the real estate market right now.