Sales of previously built homes dropped last month in part because investors paying all cash to buy foreclosures retreated once the supply of distressed properties shrank, a real estate industry group reported Monday.
The National Association of Realtors said that existing-home sales fell 1.8 percent in August from the previous month to a seasonally adjusted annual rate of 5.05 million. The performance — which captures sales completed last month — is also down 5.3 percent from a year earlier.
The results signal yet another stumble in the housing market’s stilted housing recovery, though the Realtors tried to put a positive spin on the development. The group said that having investors retreat from the market opens up opportunities for the all-important first-time home buyers, who often lost out to all-cash offers from deep-pocketed investors when bidding on foreclosures and other troubled properties.
All-cash sales made up 23 percent of transactions in August, down from 29 percent in July and the lowest overall share since December 2009. But it’s unclear if first-time buyers will step in to fill the void. After all, home prices are still high and access to credit remains tight for all but the most pristine of borrowers.
The median price for all previously-built homes – including single-family homes, townhomes, condominiums and co-ops – was $219,800 in August. That’s 4.8 percent above the year ago, and marks the 30th month in a row of year-over year price gains, the Realtor group said. Many experts who track home values say price gains have been moderating, but in many areas they remain above year-ago levels.
Meanwhile, the younger adults who tend to make up the lion’s share of first-time buyers have several factors working against them. Many are struggling to cope with a tight job market and juggling student loan debt at a time when lenders are shying away from extending mortgages to people without top-notch credit. In the aftermath of the housing crisis, lenders got hit with record financial penalties and lawsuits. They responded by demanding higher credit scores and pristine credit profiles from potential borrowers seeking government-backed mortgages – exceeding the standards set by the government itself.
On Monday, the government released the most recent information it received from banks and other financial institutions about their lending activity, as required by the Home Mortgage Disclosure Act. The information shows that the number of mortgages made to purchase a home rose 13 percent in 2013 from 2012, roughly in line with the previous year's increase. But the levels are well below those of 1993 even though the population has grown since then.
While lenders are not required to provide to the government with the reasons behind a mortgage denial, those that did cited the borrower's credit history most often as a reason for the rejection. The Urban Institute estimates that as many as 1.2 million additional loans would have been made annually since 2012 if normal, pre-housing bubble lending standards had been in place. The White House last week met lenders to discuss how to responsibly open up the credit box.
All of this may help explain why the share of first-time buyers remained at 29 percent in August, even though the Obama administration has been pleading with lenders to ease up so that more credit worthy borrowers can buy homes.