Fall in new home sales fans fears on recovery
The government data on Wednesday followed a
report showing a plunge last month in sales of previously owned homes
and a continued decline in sentiment among homebuilders, which could
bode ill for the broader recovery from the worst recession since the
Great Depression of the 1930s.
New home sales fell 7.6 percent to a 342,000 unit annual rate last
month from an upwardly revised 370,000 unit pace in November, the
Commerce Department said. It was the second straight month that new
home sales had fallen. Markets had expected a 370,000 unit annual pace
from November's previously reported 355,000 unit rate.
"The figures add to recent evidence that the recovery in the housing
market will falter once the fiscal support is removed," said Paul
Dales, U.S. economist at Capital Economics in Toronto.
The Federal Reserve on Wednesday gave a cautiously optimistic
assessment of the economy as it left U.S. lending rates near zero as
expected and repeated its pledge to keep them low for an extended
period.
However, the Fed dropped from its policy statement a reference to
improvement in the housing market and reiterated plans to end purchases
of mortgage-backed securities in March. The program had depressed
mortgage rates, contributing to the housing market's healing in recent
months.
Investors cheered the Fed's commitment to low borrowing costs and the debut of Apple Inc's (AAPL.O) iPad, lifting U.S. stocks .DJI.
Its slightly upbeat view of the economy hoisted the U.S. dollar a
six-month high against the euro, while prices for government debt fell.
New home sales for the whole of 2009 slumped 22.9 percent to a record low 374,000 units, the Commerce Department said.
RECOVERY SHOWING FATIGUE
A separate report showed mortgage applications fell for the first
time in a month last week as demand for home refinancing loans dropped
sharply.
Demand for loans to buy a home also fell, but on a smaller scale,
the Mortgage Bankers Association said. Its index of mortgage
applications fell 10.9 percent to 513.0 in the week ended January 22.
The housing market recovery is showing some signs of fatigue after a
surge in sales as first-time buyers rushed to take advantage of a
popular tax credit, which had been scheduled to expire in November.
It has since been expanded and extended until June this year and
while analysts expect home sales to pick up as a result, they reckon
the pace will not be as strong as witnessed with the initial tax credit.
"This report does not totally ruin the notion that housing is
recovering, but it does underscore the fragility of that recovery. It's
not good news for broader economic growth," said Dana Saporta, an
economist at Stone & McCarthy Research in Princeton, New Jersey.
The housing market was the main catalyst of the most painful
downturn in 70 years and renewed weakness could hobble the economic
recovery. Investment in new homes contributed to growth in the third
quarter for the first time since 2005.
New home sales were also losing out to the existing home sales
market, with a flood of foreclosures depressing prices, analysts said.
Some said the drop in sales last month could not be entirely blamed on
the expiry of the original tax credit.
"That credit was reinstated in early November, and since new home
sales are recorded at the time of contract signing, that should have
given buyers who missed the first credit plenty of time to get back
into the market in December, if they were so inclined," said Michael
Feroli, an economist at JPMorgan in New York.
Despite the slump in sales there were a few bright spots in
Wednesday's report. The median sale price for a new home rose 5.2
percent last month from November to $221,300, the highest in seven
months and the biggest rise since April 2009. Compared to December
2008, the median sale price fell 3.6 percent.
The number of new homes on the market last month dropped 1.7 percent
to 231,000 units, the lowest since April 1971. However, December's weak
sales pace left the supply of homes available for sale at 8.1 months'
worth, the highest since June 2009, from 7.6 months in November.
(Additional reporting by Julie Haviv in New York, Editing by Chizu Nomiyama)
Bank of America steps up foreclosure prevention efforts
NEW YORK (CNNMoney.com) -- One roadblock slowing President Obama's foreclosure prevention program seems to be clearing away. Bank of America, the nation's largest mortgage lender, said Tuesday that it was the first lender to agree to lower or eliminate payments on second mortgages.
This federal initiative, called the Second Lien Modification Program, pays incentives to second mortgage holders to work closely
First mortgage holders have been reluctant to lower payments when there was a second lien involved because they did not want to take on losses while leaving payments on the second mortgages intact.
The lack of an agreement with second lien holders "has been a major impediment to getting successful modifications done," said John Taylor, CEO of the National Community Reinvestment Coalition, a group whose members include foreclosure prevention counselors.
Without alteration to the terms of second mortgages, first mortgage holders often have to lower their payments even more to hit the HAMP target requiring that borrowers' total mortgage payments represent no more than 31% of their pre-tax income.
"For many homeowners facing severe financial difficulty, decreasing the payment on the first mortgage without a reduction in the payment on the second lien may not produce an affordable combined mortgage payment," said Barbara Desoer, president of Bank of America (BAC, Fortune 500) Home Loans.
The second lien plan has been in the works since last spring, shortly after HAMP was initiated, but implementing it proved difficult.
HAMP itself has been a disappointment. Originally designed to help as many as 4 million borrowers obtain mortgage workouts, it had produced fewer than 70,000 permanent modifications as of Dec. 31. Another 800,000 or so homeowners were in a trial-modification phase.
The Treasury Department hopes the second lien program will make a big difference. It's estimated that as many as half of at-risk mortgages are burdened with second liens.
Signing on Bank of America was an important first step because it is the nation's top mortgage lender with 14 million loans outstanding, including 3 million second loans.
The lender said it has all systems in place to begin implementing the program as soon as the final program policies and guidelines are released by federal regulatory agencies. That is expected to happen soon.
More banks are expected to sign on to the program very quickly, according to a Treasury spokeswoman.
"They need a lot more of the major banks to sign up," Taylor said. 
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