Home ownership may be a distant American dream

Takeaway: Affordability with low mortgage rates is not increasing monthly home sales.

The American dream lives on with 72% of respondents from a survey by the National Association of Realtors (NAR) saying they would like to own versus rent. In our opinion, single-family homes are desirable for families that want a good school system, safe neighborhoods, and proximity to mass transportation or downtown markets.

And, would you believe that the 30-year fixed rate conventional mortgage is hovering just above 4.0% which we have not seen for decades? Even if you can’t qualify for the lowest rates, paying a half- or full-point more still represents an attractive reduction for most households even after taking advantage of refinancing opportunities before in the last decade.

So far, low rates are unfortunately no boost to housing. Most of the action for home sales has been from investors taking advantage of foreclosure activity. There have also been anecdotal stories about households where a spouse has a job offer in another part of the country, but can not sell their home because the household remains underwater with their existing mortgage far exceeding the expected selling price of their home.

Are banks tightening credit guidelines to get a mortgage? In NAR’s August report, contract failures were 18% for all NAR members, up from 16% in July and just 9% in August 2010. NAR says buyers can find more favorable credit terms with community and small regional banks. Realtors do give prospective buyers advice how to qualify for a mortgage.

Finally, related to homebuilders, August government data also released this week confirmed weak demand in housing starts, down 1.4% versus July, while housing permits were up only 2.5%. We believe housing starts are tied to weakened buyers’ confidence and a poor job market. Positive gains in multi-family permits were evident, which we see as a trend whereby some households favor rentals over home ownership.

The posts on this blog are opinions, not advice.
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