Contracts for sale of existing homes dropped for the first time in three months. Maybe it was just a summer phenomenon, with people focused more on vacations and back-to-school shopping than buying homes. Well, we can all hope so because the news doesn’t really bode well otherwise. The 1.3 percent slip is a sign that the economy is still gasping for breath as it struggles with unemployment and stricter lending policies. And the housing market is bearing the brunt. “Housing is still on the ropes,” Ian Shepherdson, chief U.S. economist at High Frequency Economics in Valhalla, New York, said in a note to clients, according to Bloomberg. The story reported that Shepherdson was concerned that “the chaos in the stock markets might have persuaded a greater proportion of buyers to walk away after signing contracts.”
It’s all a vicious cycle. What’s worrisome is potential homebuyers are not getting roped into the market despite low mortgage rates and irresistible home prices. Lawrence Yun, National Association of Realtors® chief economist, told Dow Jones Newswires that the number of home buying canceled contracts have been larger than normal this year and blamed tight lending standards for the weak results. “It is now a question of lending standards and consumers having the necessary confidence to enter the market,” he said. With President Barack Obama showing concern about the U.S. housing market, the hope is that whatever is holding consumers back would be corrected. This wouldn’t just help move inventory along, but would also contribute to the overall health of the economy.
More Help for Homeowners
So, should the government help out financially distressed homeowners rather than struggling banks? That’s one of the “unconventional” ideas floating around, according to NuWire Investor, to stem the overdrawn depression in the U.S. housing market. The idea came in the wake of another set of grim numbers. Foreclosures made up 31 percent of sales in the second quarter according to RealtyTrac, a company that tracks that sector. Those are better numbers than when it touched 37 percent two years ago, but it’s still massive enough to show that the market is still ailing. One in every 611 homes received a foreclosure filing in July, ReatyTrac found. California, with 4,319 notices, led the nation in foreclosure filings. These aren’t happy numbers because a continuing trend of more foreclosures means more lowering of home prices, which keeps spelling a doom for the market. It looks the time has really arrived for some creative intervention to infuse life into the housing market.
Is Demolition an Alternative?
A year ago, Warren Buffet’s solution to a diving housing market was “Blow up a lot of houses.” Looks like some folks are tuning in on to that advice. A Belpointe CFA recently reported that Bank of America, JP Morgan, Fannie Mae and Wells Fargo are “all experimenting with home demolition as a way to reduce their foreclosed home inventory.” Definitely an unconventional idea, and one that perhaps would reduce the burden of inventory in the market. But, would it be implemented? We will just have to wait and watch.
Foreigners Buying up Luxury Homes
Guess who’s lapping up the top dollar homes in America. Not Hollywood stars or American celebrities and socialites, but wealthy Russians and other foreigners. A story on Businessweek reports that Russian elite are scoring properties in chic areas of New York, Los Angeles and Miami. “In Russia, it’s a status thing now,” says Jorge Uribe, a real estate agent with One Sotheby’s International Realty in Coral Gables, Fla. to Businessweek. “If you’re wealthy and you say you have a place in Miami, it’s like saying back in the old days, ‘I own a place in Ibiza or Monaco.’ It’s a cocktail conversation thing.” In the 12 months ended March 31, foreign buyers were responsible for purchasing $82 billion worth of U.S. homes, according to the National Association of Realtors®. That’s a 24 percent jump from the preceding year. The spiraling dollar value and emerging economies in China, India and Brazil has helped shore up the trend. The phenomenon has been a gigantic silver lining on the dark cloud hovering over the U.S. housing market.