Noelle Knox
USA Today

Rising interest rates on top of higher gas prices and property taxes are making it even harder to afford a home and putting the brakes on the nation’s hottest housing markets.

In the latest evidence, the National Association of Realtors said Tuesday that sales of existing homes fell 6% from January to May. The median priced home in May cost $230,000, up 6% from last year.

“The one thing that’s changing my forecast is the Federal Reserve,” said David Lereah., chief economist for the NAR, who said he now expects home sales to decline as much as 8% this year.

“The market is expecting several more interest rate hikes from the Fed, and that could harm some of our nation’s cooling housing markets. There are a handful of markets that are vulnerable to interest rate hikes,” he said.

The Fed meets Wednesday and Thursday and is expected to raise interest rates for the 17th time in two years.

Previous increases are already making it tough for home buyers. Last week, the average interest rate on a 30-year, fixed-rate loan was 6.7%, up from 5.57% a year ago. That means someone who borrowed the full $230,000 purchase price of the median home would have monthly payments of $1,486, instead of $1,316 a year ago.

Rising interest rates are even more dangerous for homeowners with adjustable-rate mortgages. In San Diego, where the median home price is $607,000, for example, 74% of home buyers last year took out a loan that allowed them to pay only the interest or even less, according to Loan Performance.

On Tuesday, PMI Mortgage Insurance released it’s latest Market Risk Index, which showed that 13 major metropolitan areas have a 50% chance or greater of seeing declining prices in the next two years.

“We’re seeing an orderly slowdown in the market,” says Mark Milner., chief risk officer for PMI Mortgage Insurance. “Affordability continues to be a challenge for buyers, but those risk elements are offset by the fact that the economy remains strong and labor markets solid.”

One out of three Americans are worried that rising monthly payments — especially property taxes and energy costs — will force them to sell their home and buy a less expensive one, according to a survey released Tuesday by the NAR. By a 2-to-1 margin, Americans say that high monthly payments rather than high down payments are the No. 1 obstacle to buying a home. And half of renters surveyed said they worry the cost of housing is so unaffordable that they will never be able to buy a home.

In May, the median price of a single-family home rose to $229,700, up 6.4% from a year ago. The median condo went for $229,300, up 1.9%.

While home sales are still high by historically standards, sales of existing homes in May fell 1.2% from April. The seasonally adjusted sales pace of 6.67 million units was down 6.6% from May of last year.

In addition to renters who can’t afford to buy, rising prices are also scaring away investors. The number of condos listed for sale in Las Vegas, for example, is up 67% from last year.

The lack of investors, “That’s the whole story of the (Las Vegas) market,” says Dennis Smith, president of Home Builders Research, a real estate data firm. “It’s the same way in California and Phoenix. And it’s not going to change much until you shake out the investors, which is going to take a year to a year and a half until we start to see a truer reflection of where we are.”

Of course not all markets across the country are seeing the same cooling trend in home sales. Texas, North Carolina, and New Mexico, for example, are seeing double-digit gains in home sales.

And the market for newly built homes looks strong because builders are enticing buyers with free TVs, kitchen upgrades and other types of incentives. new-home sales in May rose for the third month in a row, the Commerce Department said Monday.

But the results were in sharp contrast to the level of confidence of home builders, as measured by the Housing Market Index. The index for June, released last week, dropped to the lowest since April 1995.

And it’s easy to see why. On Monday, Lennar became the fifth home builder in recent weeks to warn investors of lower orders and more cancellations.

USA Today

WASHINGTON (AP) — Sales of existing homes fell for a third time in the past five months in May, with the weakness led by a big drop in demand in the Northeast.

The National Association of Realtors said Tuesday that sales of previously owned homes dropped 1.2% in May from April, to a seasonally adjusted annual rate of 6.67 million units.

The median price of the homes sold in May rose to $230,000, up 6% from the same month a year ago. That represented a slowdown from double-digit price gains last year, the peak of the housing boom.

The NAR report showed that the number of homes still on the market at the end of May climbed to an all-time high for the month of 3.6 million units. The number of months it would take to exhaust that inventory level at the May sales pace would be 6.5 months, highest level since May 1997.

Analysts say they believe home sellers in many parts of the country will soon start to trim their asking prices in response to the rising level of unsold homes. That will help boost sales.

David Lereah, chief economist for the Realtors, says he expects a housing slowdown but not a housing collapse as a strong economy keeps demand for homes at a solid level.

“Right now we are on course for a soft-landing in housing,” he said.

He said 30-year mortgages, which currently average 6.71%, could climb to 7% by the end of the year or even higher if the Fed goes farther in boosting interest rates than currently expected.

Fed officials are expected to increase their target for a key rate a 17th time when they meet Wednesday and Thursday.

By region, sales fell most in the Northeast, a drop of 4.2%. Sales were down 3.8% in the Midwest.

Sales of existing homes managed to post fractional gains of 0.7% in the West and 0.4% in the South.

Analysts say this is a classic pattern for a cooling housing market, with sales starting to lag under the impact of rising mortgage rates.

Lereah says he expected sales to fall 6.8% from last year’s record pace. Sales had surged to record levels for five consecutive years as buyers responded to the lowest mortgage rates in four decades.

But with mortgage rates climbing steadily under the impact of credit tightening by the Federal Reserve, analysts look for housing to slow this year.

USA Today

WASHINGTON (AP) — Sales of new homes rose in May, surprising economists who had been forecasting that housing would slow because of rising mortgage rates.

The Commerce Department reported that sales of new single-family homes increased 4.6% in May to a seasonally adjusted annual rate of 1.234 million units.

Economists polled by Reuters were expecting sales of new homes to slow in May to a 1.150 million unit pace from an originally reported 1.198 million unit rate in April.

Compared with a year earlier, the May sales pace was down 5.9%.

Median selling prices fell 4.3% from April to $235,300, a figure that was still 3.1% above the year-ago median price of $228,300.

The closely watched supply of new homes for sale at the end of May fell 0.7% to 556,000, from a downwardly revised 560,000 in April, which was a record level.

The homes for sale figure represented a 5.5 months’ supply at the current sales pace, compared to a 5.8 months’ inventory in April.

May new single-family home sales in the U.S. Northeast fell 7.9% to an annual pace of 58,000, the slowest rate since July 2004. In the South, sales climbed 6.0% to an annual rate of 669,000 units while in the West, sales rose 5.3% to a pace of 317,000 units. In the Midwest, sales edged up 2.7% to a pace of 190,000 units.

Analysts are still looking for sales of both new and existing homes to fall around 10% this year as rising mortgage rates crimp demand. The lowest mortgage rates in four decades helped to propel sales to five straight annual records.

WARNING: It discloses fees, levies, deficits and pending bylaws

Tony Gioventu
Province

Dear Condo Smarts:

I recently purchased an older townhouse in Richmond. On the surface, everything appeared fine. No leaks, new roof, plumbing replaced in 2002, simple bylaws and low strata fees. I read the minutes for the previous couple months and all was generally fine.

Now the bad news. During my offer to purchase, I suggested to my agent we obtain an information certificate.

As it turned out, the market was hot and it would have taken too much time to produce the information before the deal was gone, and the vendor was eager to sell without subjects. I have discovered that through a mediated settlement, our strata had settled a legal dispute that is ending up costing the strata over $150,000 and my unit share is $7,000.

Along with other owners, I’m speechless, uninformed and unable to pay the amount. What do we do?

Doesn’t the strata have to tell us about this?

— KC Fenton

Dear KC:

New purchasers get stung every day by not demanding sufficient information before they buy.

The information certificate, also known as a Form B, is a small investment to make in time and money to obtain some pretty basic disclosed info about your intended strata.

It covers monthly strata fees, agreements for alterations you might have to assume, future special levies that have been recently approved, projected deficits, contingency balances and bylaw amendments yet to be filed in land titles. As well, it covers 3/4 votes waiting for land-title filing — like changes in property designations, notice of pending bylaw votes, pending court or arbitration proceeding, official notices for the strata as work orders, rules of the corporation, the current budget and a developers’ rental disclosure statement if one applies.

Buyers need to ask themselves how they can consider buying without this information. Don’t be pressured by others into buying before you are satisfied!

It’s possible that the strata or your vendor knew the information but intentionally withheld it from the minutes to avoid complicating the sale.

Double-check your documents for the dates and times of the disputes, but if you didn’t request several years of the minutes or the Form B, it might be tough for you to recover this cost.

Another specific request that a buyer should make is for any engineering reports commissioned by the strata.

Is it really worth the risk when a few dollars and a few days may save you thousands in years to come?

Tony Gioventu is the executive director of the Condominium Home Owners Association (CHOA). Contact CHOA at 604-584-2462 or toll-free 1-877-353-2462, fax 604-515-9643 or e-mail [email protected].

© The Vancouver Province 2006