March through August is peak home-buying season. During that period this year, we saw a significant downturn in home-buying numbers. Americans bought fewer new homes in this six-month stretch than in any other time since record-keeping began 50 years ago. Previously occupied homes did not sell much better. Combined, the total sale of new and used homes was the weakest on record since 1963.
The poor sales figures give an intuitive contrast to another set of housing numbers: pricing. Home prices continue to drop, interest rates are at their lowest in sixty years, and in some cases rates are at all-time lows. With such attractive pricing options, why do home sales continue to slow? The trouble begins with the sputtering economy. The job market is stagnant and unemployment continues to hover above 9 percent. Consumer confidence is low. Banks have tightened lending standards amidst the uncertainty. As a result, consumers are avoiding the commitment of a home loan, and banks are making it difficult to get one. Everything seems frozen.
For an example of low confidence, half of California voters taken in a Field Poll reported their finances are worsening. This is the first time this has happened in the existence of the poll. Just 26 percent of respondents thought things will improve.
The stock market in general had a rough quarter. From July through September, stocks fell around 12 percent, making it the worst quarter we have seen in three years. Despite the drop, a number of analysts have proclaimed the drop a “correction” and forecast a strong winter period. One positive from last week is that initial jobless claims dropped to 391,000, the lowest level since April.
Interest rates move lower. We are moving beyond the headlines of “lowest interest rates in 40 years… 50 years… 60 years…” and with some, we can say that rates are at their lowest ever. For example, the 15-year fixed hit an all-time low on average last week, according to Freddie Mac, with a national average of 3.29 percent. Central Coast Lending offers a 30-year fixed rate at 3.750 percent (3.758 percent APR) and a 15-year fixed rate at 3.250 percent (3.231 percent APR).
One final, important, note. The conforming loan ceiling extension expired on September 30. The extension was passed in 2008 during the recovery as a means to increase the availability of conforming loans. In practice, this means the size of home loans in San Luis Obispo County that can be guaranteed by government backed entities Freddie Mac and Fannie Mae has dropped from $687,500 back to the high-cost limit of $561,200. Homes above that figure will fall under the “jumbo loan” programs offered by individual banks, which, in practice, means they will be subject to stricter qualification standards.