Will more contracts to buy homes mean we’re out of the housing mess?
The number of Americans who signed contracts to buy homes jumped in October 2011 to the highest level in a year, so is this a sign that the housing market is finally starting to rebound again? Afterall, houses are at their lowest prices in a decade and banks are offering historically low mortgage rates. These factors, along with the increase in contracts to buy homes, is a recipe for a rebounding housing market, correct?
No. There are two reasons:
- First, the gain follows three months of declines and isn’t enough to signal a housing recovery. According to the National Association of Realtors who grades contracts to buy homes, the increase took the reading to a score of 93. A healthy housing market is considered to be a score of 100. While the reading isn’t readily understood, what it means is that we’re still below the threshold for a housing recovery.
- The second reason, which admittedly will make more sense than the first, is that there is an unprecedented high amount of backouts on contracts to buy homes. A growing number of buyers have canceled contracts after appraisals showed the homes were worth less than the bid.
This trend of consumers backing out or banks lowering their lending amount will continue as long as there are 10 million plus homes on the market that have higher mortgages than market value. These types of underwater homes are deemed to be high foreclosure risks. The more foreclosures occur, the more the housing prices fall, which leads to more foreclosures from this target. Therefore, banks are being very conservative on their housing values.
Given the fact that it is estimated that 84 million people in this country are unable to qualify for a loan, these appraisal headaches are going to hurt the market even more.
Contracts to Buy Homes Increasing | How will the market improve?
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