When compared to September 2013, home sales have moved upward without first-time buyers. The uptick reflects interest rate concerns as buyers closed on more properties during the month to avoid increases. Buyers, on a constant watch of rate fluctuations, are kept informed by loan officers and electronic gadgets, then occasionally feel encouraged to complete transactions. News and misguided investors also affect interest rates and, therefore, real estate buying.
The National Association of Realtors (NAR) reported a 2.4 percent increase in sales of existing homes. Some economists who had made predictions of a rise to 5.10 million units found the September total of 5.17 million sold surprising. As interest rates climbed during the month, buyers and industry players moved fast, as the annual summer buying frenzy came to an end. With September being the final month of the important third quarter, industry players’ bonuses and goals are considered, hence everybody ramps up in a big push to close transactions. Sales from September 2013 were lower than the previous year by about 1.7 percent and it appears as though the market is just reflecting rate concerns, and not real growth from an economic standpoint.
Interest rates are trending downward and the 3.97 percent 30-year rate average reported by Freddie Mac is lower when compared to the 4.12 percent from Oct. 9. U.S. Treasury debt yields dropped as traders pushed back due to the expectation that news of a first time interest rate hike by the Federal Reserve was on its way.
Real estate cannot sustain a recovery based on low interest rates. First-time homebuyers needed to be an integral part of the uptick in housing sales, since they reflect the true marketplace. Without new buyers, the sense of the economy is considered negative. Buyers concerned over job security and value fluctuations stay on the sidelines as renters or by living with parents. Some banks have raised lending standards too high making many buyers unable to purchase first homes, as Ben Bernanke found out. The “real” reason for tightening the clamp on money is bank exposure to higher losses due to foreclosures.
First-time home buyers are the industry’s lifeline. Real estate transactions involving investors, vacation properties, and trades of list and buys mostly recirculate funds which are already in the marketplace. First-time buyers inject new funds, which sparks the much-needed growth in real estate. Sadly, only 29 percent of reported sales of homes in September were by first-time buyers.
The real estate market is stagnant due to the lingering effects of the bubble bursting. Banks did not lose money in the fiasco of 2005-2006. The lending frenzy led to fees and points that are the profit banks receive from loans. Some banks with bad loans on their books were bailed out as “too big to fail” measures were enacted. The fines and paybacks are a pittance to these behemoths – $16 billion, $1.9 billion – they gripe and then pay it.
Bank coffers are stuffed with cash and they intend to keep it that way. Furthermore, banks got bailed out by the federal government, banks ended up sometimes profiting sales of foreclosures, and are even returning to the scene of the crime (bubble burst) to recoup losses on the backs of mortgagors. The poor unfortunates that got caught in the mortgage games and flips are being dragged into court and finding liens on their credit years later. Now, first-time buyers have no confidence and U.S. homes sales will see an uptick that occurs without them. Banks need to cut their losses, become reasonable with lending requirements and since first time buyers start to shiver at the thought of home ownership.
Opinion By Oliver L. Malcom Jr.
Photo By Oleg Shpyrko Flickr License Boarded Houses
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