Construction Slows, Inventories Build Amid Weak Job Growth, Tax-Credit EndBy NICK TIMIRAOS And ROBBIE WHELAN
The housing market, whose collapse pulled the economy into recession in late 2007, is stalling again.
In major markets across the country, home sales are deteriorating, inventories of unsold homes are piling up and builders are scaling back construction plans. The expiration of a federal home-buyers tax credit at the end of April is weighing on the market.
On Tuesday, the U.S. Census Bureau said single-family housing starts in June fell by 0.7%, to a seasonally adjusted annual rate of 454,000. The U.S. started 1.47 million homes in 2006, before the housing bubble popped.
Future construction looks even weaker. Permits for single-family starts fell 3% in June, following big declines in both May and April. "We're hovering at post-World War II lows," said Ivy Zelman, president of Zelman & Associates, a research firm.
Economists aren't singling out one reason for the stalling housing market. A variety of factors have led to flagging confidence, they say, including sluggish labor markets, global economic turmoil and falling stock prices.
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While the housing downturn dragged the economy into a recession nearly three years ago, now it is the economy that is pulling down housing, says economist Patrick Newport at IHS Global Insight. Without sustained job growth, the housing market likely won't improve. That in turn will ricochet across manufacturing, retail and other trades heavily dependent on home building and consumer spending.
The Wall Street Journal's quarterly survey of housing-market conditions in 28 major metropolitan areas shows that inventory levels have grown in many markets. But inventory fell in some of the weakest ones, including several Florida markets, Atlanta, and Charlotte, N.C.
At the end of June, inventory was up 33% from year-ago levels in San Diego, and by 19% and 15% in Los Angeles and Orange County, Calif., respectively, according to data compiled by John Burns Real Estate Consulting. Rising inventory can lead to price declines later.
Jeff Gans, a 45-year-old engineer from Baltimore who designs software for car manufacturers, has contemplated buying a house or condo for more than a year. But concerns about job stability have kept him on the sidelines
Even falling interest rates aren't enough to whet consumer appetites for housing. Last week, the average rate on a 30-year fixed-rate mortgage was quoted at 4.57%, according to Freddie Mac, the lowest since its survey began in 1971. But demand for home-purchase mortgages sits near 14-year lows, according to the Mortgage Bankers Association, down 44% over the past two months.
The government last fall extended tax credits worth up to $8,000 to home buyers who signed contracts by April 30, causing sales to surge early this year. Those buyers had until June 30 to close their sales until Congress, concerned that the backlog of sales wouldn't close in time, extended the deadline through September.
Analysts long expected the withdrawal of a federal tax credit, which had juiced sales, to lead to a slower-than-usual summer.
"It's the magnitude that's been the issue,'' says Douglas Duncan, chief economist at Fannie Mae. "The drop-off in activity has surpassed expectations.''
To be sure, some housing markets show signs of healing. Home-sales activity in New York, Washington, D.C., and parts of California continue to improve. But other markets, including Tampa, Fla., and Chicago, face rising foreclosures and weak job growth.
Low mortgage rates and falling prices have made homes more affordable in many markets than at any time in the past decade. But those affordability gains have been offset for many buyers by tighter lending standards, particularly for "jumbo" loans that are too large for government backing. Banks are requiring down payments of 20% and more and strong credit scores because they must hold jumbo loans in their portfolios.
More broadly, the housing market faces two big problems: too many homes and falling demand. More than seven million borrowers are 30 days or more past due on their mortgage payments or in some stage of foreclosure. Rising foreclosures will keep pressure on prices as banks put more homes on the market.
Last month, nearly 39,000 borrowers received government-backed loan modifications, but more than 90,000 borrowers fell out of the program, the Obama administration said on Tuesday.
Moreover, the pool of potential buyers remains constrained by the unprecedented number of homeowners who are underwater, or who owe more than their homes are worth.
That's making it particularly hard for traditional "trade up" homeowners like Maria Billis to pull the trigger on a home purchase. Ms. Billis can't sell her townhouse in Boynton Beach, Fla., because its value has fallen by a quarter. That puts it below the $160,000 that she owes the bank.
The 31-year-old human resources consultant, who married last month and wants to start a family, found a half-dozen homes in her price range but doesn't want to sell her current home for less than the amount owed. She has considered buying the new home and renting the townhouse, but concedes, "It's a big risk."
Mortgage-finance giants Fannie Mae and Freddie Mac also are starting to push more repossessed homes onto the market. The companies owned 164,000 homes at the end of March, up 80% from a year ago.
Another reason inventory is rising: "Unrealistic sellers have flooded the market" after reports of bidding wars and home-price increases earlier in the year, says Steven Thomas, president of Altera Real Estate, a brokerage in Orange County. The amount of time that homes there have sat on the market there has swelled to 3.78 months, up from 2.35 months in April.
"The sellers think the market's coming back. They've tacked on an extra 5 to 10 to 15%. The buyers aren't going for it," says Jim Klinge, a real-estate agent in Carlsbad, Calif. Over the next six months, "it's going to feel like a double-dip because sellers are going to have to lower their prices."
Not all sellers will take that step. Jerry Anderson has listed his four-bedroom home in Dana Point, Calif., on and off the market for the last two years. He's cut the price to $1.25 million, down from $1.75 million, but hasn't had any offers on the home, which has three fireplaces and ocean views.
Mr. Anderson, who bought the home in 1987, says he'll take it off the market in December if it doesn't sell rather than cut the price.
Matt Carney listed his Moreno Valley, Calif., home for $337,000 in February, and lowered the price on Tuesday for the third time, to $297,000. He says he can't go any lower because he owes $274,000 on the home and doesn't want to dip into savings to pay for transaction costs.
Write to Nick Timiraos at firstname.lastname@example.org