Pending Home Sales, Borrowing Down

The pending sales data is suggesting the housing boom is over. "Pending sales of U.S. homes dropped in December to the lowest point in almost two years, extending a months-long slide as the housing market shows signs of sustained cooling, a trade group said on Wednesday. The National Association of Realtors said its Pending Home Sales Index, based on contracts signed in December, stood at 116.4, down 3.0 percent from November and 5.5 percent below a year ago. December's level marked the lowest point for the index since February 2004, when it hit 111.6, the Realtors said. It also may indicate a decline in home sales for January and February. Long-term mortgage rates have once again started to climb, and earlier on Wednesday the Mortgage Bankers Association said mortgage applications fell for the first time in four weeks." "The PHSI in the South rose 2.3 percent in December to 135.9 and was 4.1 percent above December 2004. In the Northeast, the index increased 1.5 percent to 90.7 but was 11.1 percent below December 2004. The index in the West fell 8.1 percent to 117.1 in December and was 11.8 percent lower than a year ago. The index in the Midwest dropped 9.3 percent to a level of 105.8 and was 11.0 below December 2004." "David Lereah, NAR’s chief economist, said, 'We’re going through a period of adjustment. As home sellers recognize a return to more normal rates of price growth, some that have been holding out for higher prices will be more willing to negotiate terms that are acceptable to buyers but still provide them a solid return on their investment.'" "The popularity of home-equity loans and refinances is declining. Freddie Mac reports that as interest-rates rise, prime borrowers (those with the best credit) are taking out fewer cash-out refinances. For the first time since mid-1999, the total volume of revolving home-equity lines of credit also dropped this past fall." And from the Wall Street Journal. "Hoping to ride a new wave of profits as the mortgage boom winds down, lenders have changed course and are targeting borrowers with adjustable-rate mortgages and encouraging them to refinance into fixed-rate loans. The latest refinancing push comes as declining loan volume and increased competition is putting pressure on lenders' bottom lines." "They are trying 'to drum up that last little bit of business' as loan volume declines, says Amy Crews Cutts, deputy chief economist at the mortgage finance company Freddie Mac. 'They have too much time on their hands and too many employees sitting around.'"