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October 24, 2014

Tight Credit Continues to Plague New-Home Sales

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Tight Credit Continues to Plague New-Home Sales

Sales of newly built single-family homes plunged 14.5 percent in March, dipping to the lowest level in eight months and marking another sign of a sluggish start to the spring-selling season.

Earlier this week, the National Association of REALTORS® reported that existing-home sales dropped slightly by 0.2 percent in March and that sales volume was at its lowest point since July 2012.

New-home sales for single-family homes fell to a seasonally adjusted annual rate of 384,000 units in March, the second consecutive monthly decline and the biggest drop since July, according to the U.S. Department of Housing and Urban Development and the U.S. Census Bureau. New-home sales were down 13.3 percent from year ago levels.

"We keep hearing from our members that tight credit conditions are preventing many first-time buyers and younger families from being able to buy a home," says Kevin Kelly, chairman of the National Association of Home Builders. "Congress must outline a clear policy on housing finance so that qualified buyers can get home loans. Otherwise, this continued uncertainty could threaten the housing recovery and overall economy."

Overly stringent underwriting standards for mortgages are taking most of the blame. These tight standards have had a ”detrimental effect on modest-priced markets and have hit first-time home buyers particularly hard," adds NAHB Chief Economist David Crowe. "As a result, most of the sales are coming from a smaller pool of buyers who have a more established credit history, are more likely to finance with higher cash downpayments, and are purchasing higher-priced homes."

By region, sales of new homes in March rose 12.5 percent in the Northeast while falling 21.5 percent in the Midwest, 16.7 percent in the West, and 14.4 percent in the South.

Inventories are showing signs of rising. New home inventories in March rose to a six-month supply at the current sales pace.

Source: National Association of Home Builders and “U.S. Home Sales Hint at Prolonged Housing Weakness,” Reuters (April 23, 2014)

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