Lending Standards

Record Low New Home Sales In 2011

New home sales in the United States are on pace to set a brand new all-time record low in 2011.  This will be the third year in a row that new home sales have set a new record low.  Sadly, this is yet another sign that the U.S. economy continues to grow weaker.  Back in 2005, more than four times as many new homes were being sold as are being sold today.  The home building industry is one of the central pillars of the U.S. economy, and the fact that we are going to set another new record low for home sales in 2011 is a really bad sign for those hoping for an economic recovery.  Unlike most of those that work in the financial industry, those that build new homes produce something of lasting value for American families.  In addition, millions of Americans have traditionally made a solid living by building and selling new homes.  But today the market for new homes has totally dried up and large numbers of those jobs are disappearing.  Some of the reasons for this include high unemployment, a glut of foreclosures on the market and the tightening of lending standards on home loans.  In order for the U.S. to have anything resembling a healthy economy again, we are going to need a revival in the sale of new homes.

But unfortunately, it looks like things are getting even worse.  In August, the number of new home sales declined for the fourth month in a row.  That is a very troubling sign because typically summer is the best time for new home sales.

Celia Chen, the director of housing economics at Moody’s Analytics, is saying the following about the dismal numbers….

“With job growth at a standstill, the stock market swinging wildly, Congress wrangling over the debt ceiling and the euro zone’s problems sending consumer confidence down, sales of new homes are slipping from an already weak pace.”

When you take a close look at the numbers, it really is shocking to see how far we have fallen.

Back in 1963, the U.S. Census Bureau began monitoring new home sales.  Prior to the most recent economic downturn, the record low for new home sales happened in 1982.

In that year, only 412,000 new homes were sold.

Well, that record was broken in 2009.

Then it was broken again in 2010.

And it will be broken again in 2011.

This year, we are on pace to see only 303,000 new homes sold in America.

That is beyond pathetic.

To get an idea of just how bad that is, just check out the following chart which comes from the Calculated Risk blog.  The first number is the year, the second number is the total number of new homes sold during that year, and the third number is the total number of new homes sold through the month of August during that year.  The number of new homes sold during 2011 is a projected number….

2000:  877  608
2001:  908  644
2002:  973  670
2003:  1,086  759
2004:  1,203  841
2005:  1,283  906
2006:  1,051  756
2007:  776  577
2008:  485  365
2009:  375  261
2010:  323  231
2011:  303  211

As you can see, this will be the fifth year in a row that new home sales have fallen.

And yet the folks on television keep telling us that the recession is over.

The frightening thing is that new home sales are this anemic even with mortgage rates at historic lows.

So what is going to happen once mortgage rates start going up?

It is hard to imagine new home sales getting even worse than they are now.

And we desperately need to get things turned around.  New home construction is very good for the economy.

According to the National Association of Home Builders, each new home that is constructed creates the equivalent of 3 jobs for an entire year and generates approximately $90,000 in taxes.

So what is holding things back?

Well, for one thing, if people do not have good jobs they cannot afford to buy new homes.

Back in 1969, 95 percent of all men between the ages of 25 and 54 had a job.  In July, only 81.2 percent of men in that age group had a job.

That is a massive problem that needs to be solved.

Unfortunately, our leaders continue to allow millions of our jobs to be shipped overseas.

If you gathered together all of the people in the United States that are “officially unemployed” right now, they would constitute the 68th largest country in the world.  It would be a nation larger than Greece.

Secondly, there is a gigantic glut of foreclosed homes on the market right now that is competing with new homes for the few qualified home buyers that are out there.

It is absolutely shocking how many vacant homes there are in some areas of the country.

According to the U.S. Census Bureau, 18 percent of all homes in the state of Florida are sitting vacant.  That figure is 63 percent larger than it was just ten years ago.

In the city of Detroit alone, there are more than 33,000 abandoned homes.

Until the number of vacant homes goes down, there is just not going to be a need in the marketplace for a lot of new homes.

Sadly, it looks like another huge wave of foreclosures could be on the way.

According to the Mortgage Bankers Association, at least 8 million Americans are currently at least one month behind on their mortgage payments.

That is more than a bit frightening.

Thirdly, lending standards on home loans have dramatically changed.

Five or six years ago, if you were breathing you could get a home loan.

Even the family dog could get a home loan.

But now the pendulum has swung to the opposite end of the spectrum.

Applying for a mortgage today is like getting a series of proctology exams from a very rude and very uncaring doctor.

Many mortgage lenders today will deny you at the slightest hint of a problem.

Even if you have a very high income, near perfect credit, very little debt and a long history of financial responsibility there is still a very good chance that you will be turned down.

If you don’t believe this, just start talking to people that have applied for home loans lately.

A ton of pending home sales are being cancelled because potential home buyers simply cannot get approved.

Until some sort of “balance” is restored to the mortgage lending process, this is going to continue to be a major problem.

It would be nice if I could tell you that things are going to get better soon, but the truth is that there are all kinds of signs that the U.S. economy is getting even worse and there are all kinds of signs that the global financial system is on the verge of a massive nervous breakdown.

So if you make a living by building or selling new homes, you might want to find other ways to supplement your income for a while.

Things are not going to turn around significantly any time soon.

Don’t Buy A House In 2011 Before You Read These 20 Wacky Statistics About The U.S. Real Estate Crisis

Unless you have been asleep or hiding under a rock for the past five years, you already know that we are experiencing the worst real estate crisis that the U.S. has ever seen.  Home prices in the United States have fallen 33 percent from the peak of the housing bubble, which is more than they fell during the Great Depression.  Those that decided to buy a house in 2005 or 2006 are really hurting right now.  Just think about it.  Could you imagine paying off a $400,000 mortgage on a home that is now only worth $250,000?  Millions of Americans are now living through that kind of financial hell.  Sadly, most analysts expect U.S. home prices to go down even further.  Despite the “best efforts” of those running our economy, unemployment is still rampant.  The number of middle class jobs continues to decline year after year, but it takes at least a middle class income to buy a decent home.  In addition, financial institutions have really tightened up lending standards and have made it much more difficult to get home loans.  Back during the wild days of the housing bubble, the family cat could get a zero-down mortgage, but today the pendulum has swung very far in the other direction and now it is really, really tough to get a home loan.  Meanwhile, the number of foreclosures and distressed properties continues to soar.  So with a ton of homes on the market and not a lot of buyers the power is firmly in the hands of those looking to buy a house.

So will home prices continue to go down?  Possibly.  But they won’t go down forever.  At some point the inflation that is already affecting many other segments of the economy will affect home prices as well.  That doesn’t mean that it will be middle class American families that will be buying up all the homes.  An increasing percentage of homes are being purchased by investors or by foreigners.  There are a lot of really beautiful homes in the United States, and wealthy people from all over the globe love to buy a house in America.

But because of the factors mentioned above, it is quite possible that U.S. home prices could go down another 10 or 20 percent, especially if the economy gets worse.

So what is the right time to buy a house?

Nobody really knows for sure.

Mortgage rates are near record lows right now and there are some great deals to be had in many areas of the country.  But that does not mean that you won’t be able to get the same home for even less 6 months or a year from now.

In any event, this truly has been a really trying time for the U.S. housing market.  Hordes of builders, construction workers, contractors, real estate agents and mortgage professionals have been put out of work by this downturn.  The housing industry is one of the core pillars of the economy, and so a recovery in home sales is desperately needed.

The following are 20 really wacky statistics about the U.S. real estate crisis….

#1 According to Zillow, 28.4 percent of all single-family homes with a mortgage in the United States are now underwater.

#2 Zillow has also announced that the average price of a home in the U.S. is about 8 percent lower than it was a year ago and that it continues to fall about 1 percent a month.

#3 U.S. home prices have now fallen a whopping 33% from where they were at during the peak of the housing bubble.

#4 During the first quarter of 2011, home values declined at the fastest rate since late 2008.

#5 According to Zillow, more than 55 percent of all single-family homes with a mortgage in Atlanta have negative equity and more than 68 percent of all single-family homes with a mortgage in Phoenix have negative equity.

#6 U.S. home values have fallen an astounding 6.3 trillion dollars since the housing crisis first began.

#7 In February, U.S. housing starts experienced their largest decline in 27 years.

#8 New home sales in the United States are now down 80% from the peak in July 2005.

#9 Historically, the percentage of residential mortgages in foreclosure in the United States has tended to hover between 1 and 1.5 percent.  Today, it is up around 4.5 percent.

#10 According to RealtyTrac, foreclosure filings in the United States are projected to increase by another 20 percent in 2011.

#11 It is estimated that 25% of all mortgages in Miami-Dade County are “in serious distress and headed for either foreclosure or short sale“.

#12 Two years ago, the average U.S. homeowner that was being foreclosed upon had not made a mortgage payment in 11 months.  Today, the average U.S. homeowner that is being foreclosed upon has not made a mortgage payment in 17 months.

#13 Sales of foreclosed homes now represent an all-time record 23.7% of the market.

#14 4.5 million home loans are now either in some stage of foreclosure or are at least 90 days delinquent.

#15 According to the Mortgage Bankers Association, at least 8 million Americans are currently at least one month behind on their mortgage payments.

#16 In September 2008, 33 percent of Americans knew someone who had been foreclosed upon or who was facing the threat of foreclosure.  Today that number has risen to 48 percent.

#17 During the first quarter of 2011, less new homes were sold in the U.S. than in any three month period ever recorded.

#18 According to a recent census report, 13% of all homes in the United States are currently sitting empty.

#19 In 1996, 89 percent of Americans believed that it was better to own a home than to rent one.  Today that number has fallen to 63 percent.

#20 According to Zillow, the United States has been in a “housing recession” for 57 straight months without an end in sight.

So should we be confident that the folks in charge are doing everything that they can to turn all of this around?

Sadly, the truth is that our “authorities” really do not know what they are doing.  The following is what Fed Chairman Ben Bernanke had to say about the housing market back in 2006….

“Housing markets are cooling a bit. Our expectation is that the decline in activity or the slowing in activity will be moderate, that house prices will probably continue to rise.”

Since that time U.S. housing prices have experienced their biggest decline ever.

At some point widespread inflation is going to reverse the trend we are experiencing right now, but that doesn’t mean that most American families will be able to afford to buy homes when that happens.

As I have written about previously, the middle class in America is shrinking.  The number of Americans on food stamps has increased by 18 million over the past four years and today 47 million Americans (a new all-time record) are living in poverty.

Millions of our jobs are being shipped overseas, the cost of living keeps going up and an increasing percentage of American families are losing faith in the economy.

More Americans than ever are talking about “the coming economic collapse” as if it is a foregone conclusion.  Our federal government is swamped with debt, our state and local governments are swamped with debt and our economic infrastructure is being ripped to shreds by globalization.

So sadly, no, there are not a whole lot of reasons to be optimistic at this point about a major economic turnaround.

The U.S. economy is going down the toilet and the coming collapse is going to be incredibly painful for all of us.

Hopefully when that collapse comes you will have somewhere warm and safe to call home.  If not, hopefully someone will have compassion on you.  In any event, we all need to buckle up because it is going to be a wild ride.

Mortgage Horror Stories: The U.S. Housing Industry Will Never Recover If Qualified People Can’t Get A Home Loan

Back about five or six years ago, when the housing bubble was still rising, just about anyone could get a mortgage.  Lending institutions were handing out ridiculously bloated home loans to almost anyone who breathed.  It didn’t matter if you had a rotten credit history, it didn’t matter if you didn’t have a job and in some cases it didn’t even matter if you had any income at all.  It was basically an orgy of mortgage lending.  But now the pendulum has swung 180 degrees in the other direction.  Severely burned by the subprime mortgage crash, mortgage lending institutions have been seriously tightening their lending standards.  As a result, in 2010 it is extremely difficult to get a home loan or a mortgage modification.  In their determination not to get burned again, mortgage lenders have completely overreacted and now a lot of highly qualified people can’t get a home loan.

This point was beautifully illustrated recently by one of our readers named John….

I was just turned down for a home loan. My credit score is 799, my wife’s 804. We had $40,000.00 to put down, which was almost 30%. BUT! Our bank turned down our application! Why? They required us to have 6 months “operating expenses” in the bank after all closing costs were covered. They came up with an arbitrary number on their own, based on our bills and such. We had that amount and more on top of our closing monies. Then why were we denied the loan? Several thousand dollars were from “cash” and the bank required that “cash” be in the bank for at least 60 days or they wouldn’t consider it fluid funding. Needless to say we didn’t make the closing date and are hiring an attorney to avoid being sued (by the seller).

A reader named distressedinbham on another website had an even more frustrating experience trying to get a home loan modification….

I am self-employed, have been all my life and have owned a home for 30 years. When I started my Loan Modification process in August of 09 I WAS NOT behind on any payments. I sent full documentation, over 150 pages, with the things they needed to verify my income. I am now 2 payments behind and I am getting nowhere. They keep flipping me between Loss Mitigation and Imminent Default, back and fourth month end month out. I made a habit of calling every week, then every two weeks just to be sure all was moving forward. From the middle of November I was told my file was with the underwriter and it would only be 30-60 days. I began automatically updating my income verification, verification that I still resided at the property and an updated 4506-T every month. In the middle of April a rep finally told me I was not in the loan modification process. In fact, that I had been denied on March 2. Keep in mind, I’m talking to these people every 2 weeks. She did a financial interview and sent me a new packet so that I could start all over, resubmitting all the documentation yet again. She told me she was my Account Manager. I completed the packet, called with a question (2 weeks later – over a week to receive the packet and another few days to complete it and gather all my documents again) and learned that my “Account Manager” was on maternity leave and I now didn’t have an account manager. Also, I was told that I had received the incorrect packet…it was the old version rather than the updated version. She asked me to fax four or five pieces of information in the hopes it would, quote, “jump start my file back into the process” and said she we send me another packet. That was mid April. Here we sit, 2-1/2 months later, I have still not received anything in writing about my rejection. And, though I’ve now had people tell me on three separate occasions that I would receive a new packet, it has yet to show up on my door step. I asked several times why my application was denied and the answer I finally got last week was that it was because I was DELIQUENT in my payments. Call me crazy but I thought that was the whole point??!! I almost hired a third party but am so hesitant to take that step. Every time I get on the phone with them it takes an hour out of my day and I am usually so upset I find it difficult to work, so I just don’t call. I’m going to sit back and regroup and decide what I need to do next.

The truth is that scenes such as these are being repeated over and over again across the United States right now.

Scott Stern, the CEO of Lenders One, says that a lot has changed since 2007….

“Lending standards have tightened dramatically between 2007 and 2009.”

In an attempt to avoid the mistakes of the housing bubble, the mortgage industry has now created a situation where standards are so tight that the entire industry is freezing up.

In May, sales of new homes in the United States dropped to the lowest level ever recorded.  To be more exact, new home sales dropped 32.7 percent to a seasonally adjusted annual rate of 300,000. 

Keep in mind that a “normal” level for new homes sales is an annual rate of about 800,000. 

New homes have never sold this slowly ever since the U.S. Commerce Department began tracking this data back in 1963.

Now, a lot of the drop in new home sales has to do with other factors, but certainly the fact that people are having such a hard time getting approved for loans is playing a role.

If large numbers of qualified people are getting turned down for mortgages that is going to suck a lot of money out of the marketplace.

And without enough qualified buyers, the U.S. housing industry is simply not going to recover.

But it isn’t just a lack of qualified buyers that is the problem.

The truth is that the U.S. real estate market is a complete and total disaster right now and there is every indication that things are going to get even worse.

So what does all of this mean?

It means that it is going to remain very difficult to sell homes.

It means that prices are going to continue to come down.

It means that real estate agents will continue to suffer and there will continue to be high unemployment in the construction industry.

In fact, every industry that is highly dependent on the U.S. housing market is likely to continue to feel a lot of pain for a long time to come.

So do you have a mortgage horror story to share?  If so, please feel free to leave it in a comment below…..