Speaking of the U.S. housing sector, prices have deflated over the past five months and some measures are down to 2002 levels. Do not expect a reversal any time soon. What is occurring alongside the mountain of excess supply is the tightening up in the appraisal process. According to the NAHB, one-third of home builders are reporting loss sales because of low appraisals, and 25% of re-sale activity is either being re-negotiated or cancelled outright, according to the National Association of Realtors...
The housing sector remains in the dumpster. The U.S. National Association of Realtors’ pending home sales index sagged 2.8% MoM for January and this followed on the heels of a 3.2% slide the month before. All regions except the South posted declines. Conditions in the West are clearly the weakest.
One key reason why the home sales backdrop is eroding, above and beyond the impact of the run-up in mortgage rates in recent months, has been the dramatic increase in the FHA mortgage insurance premiums along with the general tightening in lending standards (average FICO of 700 for FHA loans today versus 635 a mere two-years ago). This in turn means that the true mortgage rate to a first time homebuyer is closer to 6% with a 95% loan-to-value mortgage.
Moreover, for the one-third of the population that have FICO scores below 635, there is no financing available today at all. This is why the sales environment is being dominated by stressed foreclosure deals that are all-cash and being conducted by investors — first-time buyers are practically non-existent.