The NAR reports existing home sales for December

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Article Highlights

  • Nearly half of all home purchase loans in December had a down payment of 5% or less.

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  • Loose lending combined with the Fed’s low interest rate policies are driving home prices up faster than fundamentals.

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  • While the NAR supports loose, unsustainable lending standards, working class home buyers would be better served by a “straight, broad highway to debt-free ownership.

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The National Association of Realtors (NAR) reported today that existing Home Sales for December came in at 4.87 million. The consensus was for sales of 4.94 million on seasonally adjusted annual rate (SAAR) basis. Sales in November were revised downward to 4.82 million SAAR. The inventory of homes for sale came in at 1.86 million, down 9.3% from November and represents a 4.6 month supply.

Sales for all of 2013 are at a healthy pace given sluggish job growth. It is the highest level since 2006 and near the 5.2 million average for 1998-2001. Sales are being helped by loose lending standards and interest rates still near their lowest level in decades.

For example, nearly half of all home purchase loans in December 2013 had a down payment of 5% or less and nearly a quarter of purchase loans had a debt-to-income ratio >43% – high by anyone’s measure. Loose lending combined with the Fed’s low interest rate policies are driving home prices up faster than fundamentals such as rents and consumer prices. Given the 4.6 month supply of homes for sale (down from 5.1 months in November), home prices can be expected to continue to outpace rents. This does not bode well for the middle class as government policies are once again driving an unsustainable increase in home prices.

While the NAR supports loose, unsustainable lending standards, working class home buyers would be better served by a “straight, broad highway to debt-free ownership” – the standard espoused and successfully implemented by FHA in 1935, but now long since abandoned.

Edward J. Pinto is a Codirector of AEI’s International Center on Housing Risk.

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