Mark Donovan

Housing Slump Continues due to Failed Subprime Mortgages

The U.S. housing market is still in trouble, due mainly to failed subprime mortgage practices.

New home sales reports showed an increase in March, however the increase was half of what industry analysts were expecting.

The Commerce Department recently reported that new single-family home sales rose to a seasonally adjusted annual rate of 858,000 units in March. This figure is 2.6 percent higher than February, which was the slowest month in the past 7 years, and left the sales pace 23.5% lower than a year ago.

This report follows another recent report showing that existing home sales fell 8.4% in March, the biggest drop seen in 18 years.

If you are a seller the only positive nugget out of this news is that home prices rose in March 6.4% to a medium price of $254,000. The northeast region of the country slanted this data due to the fact that home sales in this area were the strongest, and they usually command higher prices.

Analysts believe the major contributor to the housing slump is the increase in mortgage foreclosures, or more specifically subprime mortgage foreclosures.

Over the past several years, many subprime home mortgage institutions were offering home mortgages to individuals who should never have received them. The homeowners receiving them did not meet traditional basic financial home mortgage standards. However, as with any sector boom, there are always folks out there looking for a quick buck. Unfortunately, in this case it was fly-by night home lending institutions that quickly setup shop and took advantage of the housing market boom.The housing market has now taken a hit by this type of lending behaviour and companies such as Lowes and Home Depot have already seen an impact in their businesses. 

The speed in which the home industry turns around will be directly proportional to how quickly the subprime mortgage industry gets cleaned up. Fortunately the cleanup has already begun, however there is probably another year ahead of us before the smoke fully clears.

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