Market Update & Mortgage Turmoil

Back in March I wrote that we had a quiet market. Now we are getting well through the summer, it is time to take a step back and review things. And it's not a pretty picture for sellers. Hopes of steady improvement have long since evaporated, and we are looking at a market which has already "peaked" for the summer, even though that peak was way below last year's levels.

All summer the number of homes on the market in Warren County has been hovering around 650, and as I write there are still 655 active listings, and just a further 57 homes under contract. With sales over recent months running around 40 to 55 per month, there is a 12 month supply of homes on the market, compared with around a 2 month supply before the market began to turn in July 2005.

The chart shows the trend since January 2005, with the rapid growth of active listings (blue), decline of sales (yellow), and the trend in the supply of homes on the market (red). Click on the chart to see a larger image.

The latest cause for concern is the turmoil in the mortgage market. With the increase in foreclosures, mortgage quality has become a big concern in the wholesale market where mortgages are "sold" and bundled as mortgage bonds to the investment funds (such as the one looking after your 401k). The result is that some lenders have been unable to bundle and sell their loans on, and as a result have been unable to lend new mortgages - effectively having to close shop.

Lending criteria across the board have been progressively tightened, and many people who could get a loan a few weeks ago are now unable to; many who could get 100% finance may now have to put 10% down (which may well count them out); and those looking for "no doc" or "stated income" loans may be looking in vain. In a nutshell, good quality credit is more important than ever (perhaps it always should have been?), and most of the "creative" lending has gone out of the window.

If you were pre-qualified a few weeks ago with your lender, check again before you do any more house hunting. You need to make sure that you are still on the same page with the amount that you can borrow, and the terms attached to it.