Worries over U.S. housing market grow
Anxiety over the housing slump kicked up a notch Wednesday, as two key industry players signaled that home sales would weaken further this year because the widening credit crunch is reducing the number of buyers who can qualify for a mortgage.
The National Assn. of Realtors, a trade group that has tried to couch the slumping housing market in the best possible terms, cited the recent turbulence in the mortgage market as it lowered its outlook for home sales for the eighth time this year.
The group said sales of previously owned homes probably would fall 6.8% from last year to 6.04 million in 2007, the lowest since 2002.
“Mortgage disruptions will hold back sales over the short term,” said Lawrence Yun, an economist for the group.
Home builder Toll Bros. Inc. said buyer interest in its homes in the last quarter was at the lowest in 20 years, and it cautioned that tightening lending standards were likely to deepen the slump for the industry.
“With the uncertainties roiling the mortgage markets right now, the pace of home sales could slow further until the credit markets settle down,” said Robert Toll, chairman of the Horsham, Pa.-based luxury home builder.
The company reported that it expected a 21% drop in revenue to $1.21 billion when it releases third-quarter results this month, and it said the number of signed contracts fell 31% from a year earlier as cancellations rose in the period ended July 31.
Robert Toll said the number of potential buyers visiting the company’s housing developments in the third quarter was the lowest for any quarter since it went public in 1986.
Still, Toll’s announcement helped lift builders’ stocks in part because analysts had expected the company’s sales to be even lower. Toll shares rose $1.38 to $24.33.
Also giving builders a boost was a report from the Mortgage Bankers Assn. that mortgage applications rose for the first time in three weeks as a drop in interest rates sparked demand for home-purchase and refinancing loans.
The banker group’s seasonally adjusted index of mortgage applications for the week ended Aug. 3 jumped 8.1% to its highest level since early June.
But the rise was dismissed by some analysts who say the data are not in line with other reports that paint a much drearier picture of the housing market. What’s more, the index tracks applications at the start of the loan process -- not whether the loan is approved and funded.
Lately, fewer loans are getting approved, according to local mortgage brokers. After a flood of defaults on sub-prime mortgages made to buyers with poor credit, lenders have been tightening requirements for borrowers.
The tougher standards are affecting not just borrowers with shaky credit but also more-creditworthy consumers. In recent days, a number of lenders have raised their rates for so-called jumbo loans of $417,000 or more, boosted their down-payment requirements and eliminated loan programs that did not require income documentation.
In addition, lenders are requiring more-precise appraisals of properties before they approve a loan, said Philip Tirone, president of Mortgage Equity Group in Los Angeles.
“Applications are up but approvals aren’t,” he said. “It boils down to a combination of tighter lending restrictions and more-conservative appraisals because banks are taking a closer look at everything.”
Beyond that, would-be buyers are being deterred by declining home values and are wondering whether they should buy a home at this time.
The uncertainty is drying up business for mortgage brokers like Tirone, who received 31 leads on potential customers in July, compared with 56 in February.
--
Times wire services were used in compiling this report.
