New home sales are dismally low. You could blame the weather, but the truth is that when you can’t find a job or your income down, banks aren’t very excited about loaning money to you, and you don’t have much faith that things will pick up soon, you don’t buy yourself a new home. You rent or pick up one of the many foreclosures on the market. NPR has more:

New-home sales dropped to a seasonally adjusted rate of 284,000 homes last month, the Commerce Department said Thursday. That’s down from 325,000 in December and less than half the 600,000-a-year pace that economists view as healthy.

Sales of previously occupied homes have not fared much better. While sales rose slightly last month, the seasonally adjusted annual pace of 5.36 million is still far below the 6 million homes a year needed to maintain a healthy market.

New home sales are an indicator of the health of the construction industry, which “normally powers economic recoveries” (or not), writes NPR. So what are people buying? According to the HSH blog, the end of the Obama tax credit means less first-time homebuyers are in the fray. More than 1/3 of properties sold in December were distressed properties, investors bought 20% of homes, and 29% of sales last year were all-cash transactions.

The investors are hungry and waiting for a turnaround (or buying and holding), while everyone else is just plain waiting for a turnaround. With this double-dip, it could be a long time coming.

Purchases of existing houses, which are tabulated when a contract closes, increased 12 percent to a 5.28 million annual rate…The median price dropped 1 percent from a year earlier, and the share of sales represented by foreclosures climbed.

Buyers are returning to the housing market after a government tax credit expired in the middle of 2010, indicating the drop in prices and cheap lending rates are making homes more affordable. At the same time, unemployment in excess of 9 percent and record foreclosures are among concerns that have prompted Federal Reserve policy makers to follow through with a second round of quantitative easing….For all of last year, purchases decreased to 4.91 million, the fewest since 1997.

Clearly, it’s no new housing bubble, but people with cash in their pockets are out finding good deals. If only people would find jobs again, too, real estate might be back in business.

Also from Bloomberg BusinessWeek:

The average rate on a 30-year fixed mortgage was 4.74 percent this week, according to figures from Freddie Mac. The rate reached 4.17 percent in early November, the lowest since records began in 1972.

The jump in rates “provided some urgency” to buyers, Lawrence Yun, the Realtors’ group’s chief economist said in a press conference. The initial increase in borrowing costs “generally induces people to make the decision earlier,” said Yun, although a sustained increase may eventually hurt demand.

Inducing a sense of consumer urgency is part of the Fed’s plan. This small spike in housing purchases lends credence to the idea that slowly increasing interest rates indeed makes consumers buy more, out of fear they’ll miss the best deals. It remains to be seen whether this plan works in other sectors, too.

Pending home sales, instead of dropping 1% in October as estimated, rose 10%. The gains happened amidst rock-bottom mortgage rates of 4.3% and late September’s foreclosure moratorium. Bloomberg has more:

Three of four regions saw an increase, today’s report showed. That included gains of 27 percent in the Midwest, 20 percent in the Northeast and 7.1 percent in the South. Purchases fell 0.4 percent in the West.

Compared with October 2009, pending sales were down 22 percent.

“Pending home sales are considered a leading indicator because they track contract signings,” according to Bloomberg. The real verdict on the real estate market will happen when–and if–all these contracts close. Banks still aren’t willing to lend money the way they used to; if closings do indeed increase proportionally to contract signing, then we’re getting somewhere.

In a recent article that appeared on CNBC “Is It Safe to Buy a Foreclosure?” the following advice was offered:

It’s safe to buy a previously foreclosed-upon house if title insurance is available on it, experts say….As long as the new lender and new owner have title insurance, the former owner can’t seize the home back. The new owner will keep the house, and the displaced former owner might be compensated with money.

This story was a real wake up call for me on just how far the housing market has fallen, even from other past post-bubble lows.

Back in 2007–2008, buying a foreclosure was something savvy buyers would look into in order to get a decent house at a heavily discounted price. Buyers at that time essentially had two options – buy a house from a previous owner or buy a bank-owned property.

Flash forward to 2010 and you’ll be hard pressed to find any home buyers who are looking at non-bank owned properties. The main reason for this that foreclosed properties have almost completely saturated the market.

Consider the following figure from RealtyTrac: In the US, one out of every 389 US households with a mortgage is in foreclosure. In the most troubled states such as California and Florida (which also contain a high percentage of our nation’s housing stock), the rate shoots up to one in every 79 homes.

With this in mind the article from CNBC should have been titled “How to Stay Safe When you buy a Foreclosure”, because if you buy a home, chances are it will be a foreclosure.

The crux of the CNBC article touched on the scary trend of new owners being sued by former owners who were given the boot by their bank without proper due diligence and legal procedures being followed. The huge “robo-signing” scandal may only be the tip of the iceberg. We’ll see the rest after Congress gets finished grilling mortgage industry and banking executives on what went wrong with their internal procedures.

Title insurance, as the excerpt above states, is probably the best solution to this problem. I have another solution: Don’t buy a house.

The real estate market is still a basket case. If you prefer not to get dragged down in complicated legal proceedings, you should simply look into renting.

I know, many people still claim that renting is throwing your money down the drain, but no matter how dysfunctional the housing market becomes – just when you think we can’t hit a new low, there it comes and takes everyone by surprise.

If you’re intent on purchasing a new house, you owe it to yourself to at least wait until the congressional hearings on the mortgage industry have reached some sort of conclusion. There are a lot of lawyers in the US and they are all salivating about being able to bring lawsuits surrounding the hundreds of thousands of foreclosures filed in the US since the beginning of the financial crisis. I’ll be sitting this one out on the sidelines from my rented apartment. Won’t you join me?

About the Author: Aaron Huber is a staff writer for Global Finance School. Global Finance School is a leader in producing interactive e-learning courses on finance, accounting, and economics.

Almost two weeks ago, a GMAC mortgage processor shared that he had approved hundreds of thousands of foreclosure documents without reviewing them. As a result of the claim, which was given during sworn depositions, GMAC Mortgage suspended the foreclosure and eviction process in the 23 judicial-approval states, where a judge has to approve foreclosures. Lenders JPMorgan Chase and Bank of America jumped on the bandwagon last week, also freezing mortgages in those states. Speculation has it that Wells Fargo, Citi, and HBSC may follow suit.

In the fray, it also came out that some companies were using “robo-signers,” employees who, like that initial GMAC processor, signed “thousands of foreclosure affidavits a month, falsely attesting that they had reviewed the material,” writes the New York Times. Politicians, judges and lawyers are now raising hell, wanting to freeze all foreclosures in their respective states. The story continues to unfold.

According to the New York Times, the foreclosure freeze could be a golden opportunity for people to stay in their homes–and for lawyers to jump into a wide-open niche:

While GMAC is the first big lender to publicly acknowledge that its practices might have been improper, defense lawyers and consumer advocates have long argued that numerous lenders have used inaccurate or incomplete documents to remove delinquent owners from their houses.

As banks’ foreclosure practices have come under the microscope, problems with notarizations on mortgage assignments have emerged…In some cases, the notarizations predated the preparation of the legal documents, suggesting that signatures were not reviewed by a notary. Other notarizations took place in offices far away from where the documents were signed, indicating that the notaries might not have witnessed the signings as the law required.

I wonder how long this spectacle is going to last.

June’s pending home sales are down 2.6%, hitting an index record low of 75.7, according to the National Association of Realtors. CNBC has more:

The Realtors said its Pending Home Sales Index, based on contracts signed in June, fell to a record low 75.7 from a revised 77.7 in May. Economists polled by Reuters had expected a rise of 0.6 percent.

Contracts rose 3.7 percent in the South, the country’s largest region, but dropped by 0.2 percent in the West, by 12.2 percent in the Northeast and by 9.5 percent in the Midwest.

So much for expectations of recovery after last month’s -29.9%, post-tax-credit blow. But don’t worry, the government has everything under control. Tim Geithner wrote in a New York Times op-ed today that (via Ritholtz.com):

• Private job growth has returned — not as fast as we would like, but at an earlier stage of this recovery than in the last two recoveries. Manufacturing has generated 136,000 new jobs in the past six months.

• American families are saving more, paying down their debt and borrowing more responsibly. This has been a necessary adjustment because the borrow-and-spend path we were on wasn’t sustainable.

This says nothing about anyone’s interest in buying more homes, of course, but I’m sure Geithner et al. would like us to extrapolate hope from the feel-good propaganda above.

June housing starts, the number of new homes and apartments builders have started constructing, were at the lowest levels since October 2009. Bloomberg has more on this simple supply-and-demand scenario:

…a slump in sales following the expiration of a government tax incentive caused U.S. builders to cut back.

“Given the excess of existing homes for sale, there is no rush to boost starts significantly,” said Jim O’Sullivan, chief economist at MF Global Ltd. in New York, who forecast a decline in starts to 550,000. “There has been volatility in the data because of the tax credit. The best you can say is the big drag on growth from housing ended a year ago.”
The US has had an oversupply of housing for what, 2 years now? Building anything right now is risky, outside of the few regions that still hold promise for developers. I’m surprised the government tax incentive caused as much construction as it did.

Oddly enough, building permits are up this month, a sign that indicates increased construction down the road. The question is when.

Bank repossessions were at a record high in Q2, according to RealtyTrac. Reuters has more:

Banks took control of 269,962 properties in the second quarter, up 5 percent from the prior quarter and a 38 percent spike from the second quarter of last year, RealtyTrac said in its midyear 2010 foreclosure report. Repossessions will likely top 1 million this year.

One in every 78 households got at least one foreclosure filing in the first six months of this year.

Anybody still questioning the double dip?

US real estate prices are at record lows, but our cousin down under has quite the lucrative market, thanks to a housing shortage. Bloomberg has more:

…a shortage of 200,000 dwellings…is helping fuel Australian home prices, which are 82 percent higher than in the U.S., and disproving investors such as Jeremy Grantham, who says they will fall 42 percent as interest rates rise in one of the world’s priciest home markets.

Australia’s median home price was 6.8 times gross yearly income last year, compared with 5.1 times in the U.K. and 2.9 times in the U.S., according to the annual Demographia International Housing Affordability Survey. The nation of 22 million people has six of the 10 most unaffordable cities among the U.S., U.K., Canada, Ireland, New Zealand and Australia, the survey showed.

“Over the next 10 years, Australia needs to build about 420,000 homes more than were built over the past decade to meet demand,” according to one analyst interviewed in the Bloomberg article. Developers must be chomping at the bit to get a piece of this bubble before it blows.

President Obama will sign a new homebuyer tax credit extension today. The tax credit will now run until September 30 for those who already have a home under contract. It doesn’t apply to people who are still shopping for homes. The New York Times has more:

Congress has sent President Obama a plan to give home buyers an extra three months to qualify for up t0 $8,000 in federal tax credits. Buyers who already have signed contracts will now have until Sept. 30 to complete their purchases. Under the current terms, buyers had until April 30 to get a signed sales contract and until June 30 to complete the sale. The House approved the measure on Tuesday. Legislation in the Senate was approved Wednesday night by unanimous consent.