NEW HOME SALES in February 2011 were at an annualized rate of $250,000, a 40-year low; sales of existing homes, despite very affordable prices, were 30% off their peak; and home prices fell for the sixth consecutive month in January.
Anthony Sanders, director of Real Estate Entrepreneurship at George Mason University, speculates the tougher credit standards may have stripped as much as 30% of the buyers — or more — off the market, compared with normal times.
And it’s about to get harder for buyers. Federal regulators proposed rules last week that are designed to discourage risky lending but that will also likely further restrict lending.
Banks would be required to keep 5% of some loans, specifically those with less than 20% down payments, on their books rather than selling them all off as securities. As a result, banks make be unlikely to issue loans where less than 20% is put down. So much for first-time buyers.
“We think the new rules are appalling,” said the NAHB’s Howard. “Only the wealthy will be able to buy homes at low interest cost.”
It could also further erode consumer demand for homes.
“It’s disturbing,” said Lennox Scott, head of John LA. Scott Real estate in the Pacific Northwest. “We’re just starting to feel healthier in inventory levels and prices and this is a potential headwind.”
The immediate impact, should the new regulations get adopted, should be minor, according to Steve O’Connor, spokesman for the Mortgage Bankers Association. That’s because Fannie, Freddie and FHA loans are all exempt from the requirements and they represent more than 90% of the market right now.
The government, however, wants to reduce the presence of all three agencies in favor of private lenders, and banking experts fears the long-term impact of abandoning the field to mostly private companies.
“For the first time in 100 years,” said Howard, “the government is discouraging you. It’s saying ‘We intend to make it more difficult for you and your kids to buy homes.'”