Low Interest Rates Fail to Boost Home Sales

Ben Bernanke tried to reassure investors Monday that the United States is in better shape than it was during the Great Depression… and that interest rate cuts might not be enough to jumpstart the depressed stock and housing markets. If they do drop interest rates to zero, the Federal Reserve does have other tools to influence liquidity – it can purchase Treasury bonds to increase the money supply.

But even low interest rates aren’t helping home sales much.

Homebuilder Beazer (BZH) just reported a fourth quarter loss of almost $500 million. Beazer and its competitors – Pulte Homes (PHM), Toll Brothers (TOL) and D.R. Horton (DHI) – have been struggling to pare losses as they reduce inventory and property.

And low interest rates aren’t helping those homeowners already “upside down” in their loans. But they are helping to drive borrowers to the FHA. Because of the issues behind Fannie Mae (FNM) and Freddie Mac (FRE), new homeowners with the most risk and fewest dollars are going to the FHA for loans.

In 2007, they handled 3% of new loans. This year it's 26%. But these additional higher-risk loans are stressing the FHA insurance system. It’s dropped the FHA insurance fund 39% since last year. It raises concerns of the FHA requiring its own bailout.

And that concern could be well founded. TransUnion, the credit-data warehouse, reported Tuesday morning that delinquent mortgages could double by next year.

Comments

[jackooo:]

Why would you buy a house at 0% interest if it is going to lose $100,000 over the next year?
My neighbors house in Ca. is down from the asking price $120,000.

2008 Dec 03 11:45 AM

[petej:]

Someone who found their dream home, in their price range, in their favourite neighborhood who planned to stay in it for the next 10 years might buy in this market. You're talking about housing speculation which for all intents and purposes is over, its back to basics.

A family of 4 should not day trade on their housing search. Think of it this way, if the value temporarily goes down 100k then your property taxes should drop too. If you're in California you can then reset lower for the future due to Prop 13.


On Dec 03 11:45 AM jackooo wrote:

> Why would you buy a house at 0% interest if it is going to lose $100,000
> over the next year?
> My neighbors house in Ca. is down from the asking price $120,000.

2008 Dec 03 01:40 PM

[vreporter:]

petej,
You are undoubtedly part of the problem - given that answer. When that family of four loses their 20% equity, their intent is irrelevant and they end up with their furniture on the sidewalk. The comparison to day trading simply misses the point about the importance of valuation. Cost per sq ft has a long way further down to go regardless of interest rates. If you're a real estate broker, you need to think about your career restructuring!


On Dec 03 01:40 PM petej wrote:

> Someone who found their dream home, in their price range, in their
> favourite neighborhood who planned to stay in it for the next 10
> years might buy in this market. You're talking about housing speculation
> which for all intents and purposes is over, its back to basics.<br/>
>
> A family of 4 should not day trade on their housing search. Think
> of it this way, if the value temporarily goes down 100k then your
> property taxes should drop too. If you're in California you can
> then reset lower for the future due to Prop 13.

2008 Dec 03 05:49 PM

[axelrod608:]

Liar's loans will be resetting thru 2012, so foreclosures will remain high until 2013. And home values will not stabilize until then. Why buy what you know will lose value for the ext 5 years ? A car, maybe, but not a house.

2008 Dec 03 06:25 PM

[Pipo:]

Read Toll Brothers CEO comments on his company prospects.

TOL is only down 2% in the last 12 months. Quite impressive for a homebuilder.

ceotalk.blogspot.com/

2008 Dec 05 07:21 AM