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Construction constricted

Rock-bottom mortgage rates cannot keep sales of new homes from falling to record lows

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Construction constricted
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A pair of mid-August reports dashed any hopes that a housing recovery could push a larger economic expansion any time soon. The Commerce Department on Aug. 23 reported that sales of new homes fell nearly 1 percent in July, and that such sales were on an annual pace to be lower than last year's 323,000 sales of new homes. Last year's sales number was the lowest since the department began reporting the data in 1963.

Declining sales in the South and the West led the trend, with the Midwest and the Northeast seeing some growth. Overall, new home sales have fallen 18 percent in two years. The median price for a new home in July was $222,000; for an existing home, the median price was $174,000.

Analysts said a weak employment market and tighter lending requirements by banks are slowing sales despite historically low interest rates. "A new home," economist Paul Dales told the Associated Press, "is a luxury that many Americans can no longer afford."

A report a day earlier showed that the same may be true of some old homes. The Mortgage Bankers Association (MBA) on Aug. 22 reported that 8.44 percent of homeowners with mortgages missed a payment in the second quarter (April through June) of this year. That's up from 8.32 percent in the first quarter and far higher than the 1.1 percent that the MBA considers normal. The foreclosure figure had reached a high of 10 percent last year, and courts in hard-hit states are working through a backlog of foreclosure filings.

"We've been extremely bearish on the entire [housing] sector since the start of the year," Robert Wetenhall of RBC Capital Markets told CNBC. "There's nothing from a data set, in terms of delinquencies or home prices or volume trends, that has caused us to turn more positive."

Fewer problems

The FDIC won't tell you the names of the banks on its "problem" list, but it did report on Aug. 23 that the number of institutions on that list is falling.

The government-backed agency says 865 banks made its confidential list of institutions with low capital reserves in the second quarter, down from 888 banks in the first quarter. The report marked the first quarter since 2006 to show the number of "problem" banks falling.

American banks are making what acting FDIC chairman Martin Gruenberg calls "gradual but steady progress" despite fears that they could get swept up in worldwide financial problems. The industry earned $28.8 billion in the second quarter, nearly $8 billion more than in the second quarter of last year. The gain in earnings was largely due to less money lost on loans, and the quarter was the eighth in a row to show earnings improvement.

Sixty-eight banks have closed down this year, a number low enough to allow the FDIC's deposit insurance fund to show a positive balance of $3.9 billion at the end of June.

Timothy Lamer

Tim is executive editor of WORLD Commentary. He previously worked for the Media Research Center in Alexandria, Va. His work has also appeared in The Wall Street Journal, The Washington Post, and The Weekly Standard.


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