Sales of existing U.S. homes fell last month, but rose on a yearly basis, according to data from the National Association of Realtors.

Total sales dropped 3.0 percent to a seasonally adjusted annual rate of 4.91 million in September, down from an upwardly revised 5.06 million homes in August. Compared with the same time last year, however, sales were up 11.3 percent.

“Existing-home sales have bounced around this year, staying relatively close to the current level in most months,” said NAR chief economist Lawrence Yun. “The irony is affordability conditions have improved to historic highs and more creditworthy borrowers are trying to purchase homes, but the share of contract failures is double the level of September 2010. Even so, the volume of successful buyers is higher than a year ago and is remaining fairly stable - this speaks to an unfulfilled demand.”

The NAR reported that 18 percent of its members reported contract failures in September, the same as August, but up dramatically from the 9 percent from a year ago.

“All year we’ve been discussing the fact that many creditworthy home buyers are being denied mortgages,” said NAR President Ron Phipps. “On top of that, loan limits have been lowered, which means buyers of higher priced homes, including many in more expensive housing markets, now have to pay a higher interest rate for a jumbo mortgage than buyers who can qualify for a conventional loan. We need to remove the roadblocks to a housing recovery - not place more obstacles in the way of financially qualified buyers.”

Regionally, sales rose 2.6 percent in the Northeast, drooped 0.9 percent in the Midwest, fell 2.6 percent in the South, and plunged 8.8 percent in the West.

The median home price for the country fell to $165,400, down 3.5 percent over September 2010. A major contributing factor to the price decline is the amount of distressed homes on the market. They made up 30 percent of sales last month.

Inventory of existing homes fell 2.0 percent in September to 3.48 million. At the current sales pace that represents an 8.5-month supply. That’s down from an 8.4-month supply in August.

Mortgage finance giants Fannie Mae and Freddie Mac both recently released their reports and outlooks on the state of the U.S. housing market. Unfortunately, their predictions are not looking exciting.

Freddie Mac’s report, Economic and Housing Market Outlook for October, showed that home-ownership rates have fallen in the past year, sliding down 1.5 percent to 65.9 percent from 66.9 percent during the second quarter of 2010. Among those in the ‘under 25′ age range, home-ownership is down 4.4 percent while the rate for those between the ages of 25 and 29 is down 7.0 percent.

And as a result, builders are concentrating on apartment buildings to attract those who are not buying homes anymore.

“New construction starts are slowly picking up and multifamily lending appears to be rising as well with this year’s origination volume stronger than 2010’s,” said Frank Nothaft, Freddie Mac vice president and chief economist. “In part, the rise in originations is related to the low-level of mortgage rates, improving apartment-sector economics, and the return of traditional lenders that had curtailed activity during the recession.”

As for Fannie Mae, they foresee continued economic trouble, with slow growth rates that will also hinder home buying and mortgage applications. Fannie even put the odds of a repeat recession by the end of 2012 at close to fifty-fifty.

“In this type of environment, the housing market remains very sluggish and consumers’ willingness to dig into their savings to purchase big ticket items is very low,” said Fannie Mae Chief Economist Doug Duncan. “There’s been a little seasonal cyclical pickup in housing activity recently as spring and summer sales are generally stronger than fall and winter, but leading indicators point to housing sales bouncing near the bottom at least through the end of 2012.”

Duncan also pointed out that as foreclosed properties continue to plague the market, prices will remain weak. And if that is true, he says, “Home prices are a key factor for any positive movement in the housing market,” then it could be a long recovery indeed.

Another monthly decline in new home sales has prompted a fresh round of worrying and despair over the U.S. housing market.

Sales of new homes in August fell for the fourth straight month to 295,000 units, according to the Commerce Department, a six month low and a pace that threatens to be the “worst year since the government began keeping records a half century ago,” from the Associated Press.

Last month’s 2.3 percent monthly sales drop was accompanied by a 9 percent decrease in the median new home price, which fell to $209,100, an 11-month low.

Media outlets and analysts are pretty dour about the indications of this data. For example:

• “The housing sector can’t get any worse,” said Michael Englund, an economist at Action Economics in Boulder, Colorado, as quoted in a Reuters article.
• “The [housing] market is dead, and even record-low mortgage rates are not doing anything to help,” said Ian Shepherdson, chief U.S. economist at High Frequency Economics as quoted in the Wall Street Journal.
• “Sales are very weak, and there will be very little improvement over the next couple of months. We expect a step up in distressed home sales, which will put more downward pressure on prices. It’ll be a very slow return to normal,”said Celia Chen, a housing economist at Moody’s Analytics Inc. in West Chester, Pennsylvania as quoted in BusinessWeek.
• “Home prices have dropped more since the recession started, on a percentage basis, than during the Great Depression of the 1930s. It took 19 years for prices to fully recover after the Depression,” said a commenter from the Associated Press.

On the positive, home builders are at least responding to the falling demand appropriately. Total new home inventory in August also dropped to a record low.

In an effort to start weaning mortgage finance giants Fannie Mae and Freddie Mac off of taxpayer funding, the two companies may need to start charging higher lender fees and require more mortgage insurance.

According to Edward DeMarco, acting director of the Federal Housing Finance Agency and the current regulator of Fannie and Freddie, these changes could reduce the risks of more housing-related losses for taxpayers.

Any such changes would have to be phases in gradually, and would, “not happen immediately but should be expected in 2012, with some prior announcement,” as DeMarco said in a recent speech at a mortgage conference in Raleigh.

Fannie and Freddie, which buy and guarantee mortgage loans from lenders and then bundle and resell to investors, were taken into government conservatorship in fall of 2008 when they were collapsing and  deemed “too big too fail.” Now the two behemoths back about 90 percent of the mortgages in the country.

DeMarco said that the FHFA has been trying to find ways on its own to limit taxpayer involvement in the two companies, as the federal government has not yet decided on a plan for the future of Fannie and Freddie.

“We all knew that reforming the housing finance system was going to be difficult, but I think the general expectation was that more progress would have been made by now,” DeMarco said, as quoted in a Washington Post article.

Opponents of the proposed fee hikes say the increased costs will be passed on to the consumers and will further depress the ailing housing market. Yet DeMarco told reporters that,

“These are steps we can take and we think that we’re charged with taking that are supportive in that direction. Consumers will ultimately measure this by the price and availability of mortgage credit, and in a more macro sense…whether there’s a sense of stability or confidence in housing markets.”

Interest rates on long-term mortgage loans dropped to a new low this past week, according to mortgage finance company Freddie Mac, in response to investors’ concern about U.S. unemployment and European debt burdens.

“Market concerns over Eurozone sovereign debt default and a weak U.S. employment report for August placed downward pressure on Treasury bond yields and allowed fixed mortgage rates to hit new lows this week,”said Freddie Mac vice president and chief economist in the press release. “On net, the economy added no new jobs last month and was the weakest reading since September 2010. Meanwhile, the unemployment rate remained at 9.1 percent, marking its 31st consecutive month of being above 8 percent, the longest such stretch in 70 years.”

The average rate on a 30-year fixed rate mortgage fell to 4.12 percent, excluding points, down from 4.22 percent the previous week. One year ago the mortgage rate was 4.35 percent. The current rate is the lowest in the 40-year history of the Freddie Mac survey.

Rates on 15-year fixed rate mortgages averaged 3.33 percent, down from 3.39 percent, and one year adjustable rate mortgages carried an average rate of 2.84 percent, down from 2.89 percent the week before.

Still, rock bottom rates are not doing much to spur activity in the housing market, nor are they a sign of recovery.

“Home buyers are not responding to these record-low interest rates,” said Patrick Newport, an economist at IHS Global Insight in Lexington, Massachusetts as quoted in a Bloomberg article. “The reason interest rates are dropping recently is that the outlook for the economy has gotten weaker. A smart person would be very careful about buying a home unless he thinks his job is very secure.”

With hundreds of thousands of foreclosed properties on its hands, the U.S government is unsure how to best dispose of them and has started asking anyone and everyone for solutions.

Government-controlled mortgage finance companies Fannie Mae and Freddie Mac along with the Federal Housing Agency issued a joint statement to the public in August asking for ideas on how to prudently clear out the 248,000 properties in their possession and the roughly 800,000 foreclosed homes working their way into the system.

“It isn’t necessarily our preference that FHA is going to itself continue to hold these properties,” says FHA Acting Commissioner Carol Galante as quoted in a BusinessWeek article. “We want to move homes through the system so we can recover.” Yet simply dumping all the properties on the market isn’t the answer. “If you’re putting too much through that system you are helping to drive down prices,” she added.

Not everyone thinks its wise for the government to fully disclose its confusion.

“It’s almost like having the captain of the Titanic go on the public address system and say, ‘Does anybody have an idea?’” says Mark Wiseman, a former director of Cleveland’s foreclosure-prevention program. “It’s not a confidence builder.”

Fannie, Freddie, and FHA have been slowly working through their inventories, reducing their property holdings from 295,000 in December 2010 to 248,000 by June of this year. They are likely to gain more though as properties held up by the ‘robo-signing’ mortgage mess will soon be ready to complete the foreclosure process.

One possible path for the government agencies is to turn their inventories into rental properties, working with private companies to manage them. The drawback is that taxpayers would have to foot a huge upfront cost in order to get all the properties up to code and ready for renting, not to mention the cost of management costs.

If you have the perfect solution, the government invites you to submit it by September 15 to reo.rfi@fhfa.gov.

Sales of existing U.S. homes fell again in July, according to the latest report from the National Association of Realtors. Prices were down as well, posting the first monthly drop in five months.

Existing home sales dropped 3.5 percent in July to a seasonally adjusted annual rate of 4.67 million units, down from an upwardly revised 4.84 million in June. The good news, however, is that sales are up a dramatic 21.0 percent from July 2010 when the home buyer tax credit had just expired.

The NAR continues to be unimpressed with today’s tightened mortgage lending standards.

“Affordability conditions this year have been the most favorable on record dating back to 1970, but many buyers are being held back because banks are offering financing to only the most highly qualified borrowers, ignoring a large share of otherwise creditworthy buyers,” said Lawrence Yun, NAR chief economist in a press release. “Those potential buyers represent the difference between an uneven recovery and a much more robust housing market that could stimulate additional economic activity and create jobs.”

On a regional basis, the Northeast and Midwest saw modest sales gain, while the South had a mild decline and sales in the West fell by double-digits.

The national existing-home median price fell to $174,000 in July, down from $184,300 in June, again led by a major drop in the West. It was also down 4.4 percent from the previous year.

Total inventory fell in the last month by 1.7 percent to 3.65 million homes. At the current sakes pace, that represents a 9.4-month supply, up from a 9.2-month supply in June. Distressed homes continue to stay at an elevated level, making up about 30 percent of all sales each month.

The housing market is still in a slump with no signs of recovery on the horizon. A recent FHA survey showed that mortgage applications were down a whopping 30.8% over the last nine months despite a slight rise of 7.8% during the month of June. Even with low interest rates potential homeowners are reluctant to buy and home values continue to decline across the country. With new requirements to secure a home mortgage on the horizon it looks like the housing market could still be far from a turn around.

The Dodd Frank Wall Street Reform And Consumer Protection Act of 2010 has proposed changes to mortgage funding criteria and soon home buyers could need as much as a 20% down payment to secure a conventional home loan with the best rates. While in the past this was the typical down payment needed to receive a mortgage, during the housing boom the standards changed leading to the housing market downfall.

While many in the industry do agree that changes need to happen, some worry that this might be too much for an already unstable housing market.

According to an article on the thestreet.com even the national association of realtors is speaking up and saying not so fast. Raising the down payment to 20% would be a burden that too many people simply would not be able to afford.

The National Association of Realtors said after looking at national saving rate data:

“it would take 9.5 years for the typical American family to save enough money for a 10% down payment and closing costs, and fully 16 years to save for a 20% down payment and closing costs.”

“A 10% or 20% down payment requirement for the QRM means that even the most creditworthy and diligent first-time homebuyer cannot qualify for the lowest rates and safest products in the market.”

If these changes were to go into affect the same article points out that the housing industry could be crippled even more. Millions of potential homebuyers could be shut out of the housing market altogether which could lead to even higher inventory and even further drops in home values.

In addition to the 20% down, other proposals with the legislation include limiting debt to 36%, not allowing a mortgage payment above 28% of gross income as well as keeping borrowers with delinquent accounts and other financial issues from qualifying for a home loan altogether.

Homeowners continue to flee to the safety of fixed rate mortgages, according to recent data from housing finance company Freddie Mac. And with interest rates remaining low, borrowers are also getting into shorter-term fixed rate loans.

The Freddie Mac survey showed that 95 percent of refinance loans in the second quarter of 2011 were fixed rate mortgages, a major shift from the housing boom days, when adjustable rate mortgages (ARMs) were extremely popular. A full 55 percent of those with hybrid ARMs opted for the security of a fixed rate loan during the same time.

What’s more, among those who refinanced a 30-year fixed rate loan in the second quarter, 37 percent chose a shorter term of either 15 or 20 years. That’s the largest share since the third quarter of 2003, a sign that many borrowers are taking advantage of the lowest rates with and trying to pay off their mortgages, rather than squeeze out their equity.

“Compared to a 30-year fixed-rate mortgage, the interest rate on 15-year fixed was about 0.8 percentage points lower during the second quarter,” Freddie Mac chief economist Frank Nothaft said. “For borrowers motivated to refinance by low fixed-rates, they could obtain even lower rates by shortening their term.”

Interest rates on 30-year fixed rate mortgages averaged 4.65 percent, excluding points and 15-year fixed rate loans carried an average of 3.84 percent, “well below long-term averages,” Frank Nothaft added. “…It’s no wonder we continue to see strong refinance activity into fixed rate loans.”

Refinance loans have made up most of the mortgage market business in the post-boom doldrums. The survey found that 70 percent of all loan applications during the second quarter were refinance requests. The low rates have made that a no-brainer for qualified homeowners, but the dismally low home-purchase applications are a sign that the housing market is not yet in recovery.

In the wake of much tighter lending standards, mortgage delinquency rates are slowly moving downward. According to data from credit bureau TransUnion, the percent of homeowners who were behind by 60 days or more on their mortgages, fell to 5.82 percent during the second quarter of this year, from 6.67 percent the previous spring. That’s a six-quarter streak of delinquency rate declines, and it is also down from the recent market peak of 6.9 percent in the fourth quarter of 2009.

Newer homebuyers with stellar credit records, and thus less likely to default, are helping to pull the rate up.

“Newer vintages of mortgages are performing better and becoming a bigger portion of outstanding mortgage universe,” said TransUnion’s Tim Martin as quoted in a Washington Post article.

He also added,

“Not only are these consumers less likely to default if house prices continue to edge downward throughout the year, but their willingness to repay their debt obligations in the face of high unemployment rates is greater. It is because of these dynamics that lenders today take a much closer look at the borrower’s income history and overall debt situation than before the recession began in 2007.”

Delinquency rates fell in 49 of the 50 states, with only Vermont posting a small gain. The highest rates of late payments remain concentrated in four states: Florida with a 13.91 percent delinquency rate, Nevada at 13.04 percent, California at 7.83 percent, and Arizona with a 7.78 late payment pace.

While the declines over the past six quarters are certainly a positive trend, the national delinquency rate is still three times as high as the pre-housing bust average. Said Martin,

“It took three calendar years for delinquencies to run up to their peak. We’re one-and-a-half years since that peak, and we’ve recovered about 22 percent. It’s taking longer to come down than it did to go up.”

At the current pace, it will take until 2015 before the rate is back to pre-recession levels. We can certainly hope for a major boost in the employment market though, which would speed the recovery of the delinquency numbers.