New closing rules are being blamed for a year-end drop in existing home sales.
Total existing home sales fell 10.5 percent for November, the lowest since July 2010.
The National Association of Realtors, which compiled the report, said the drop off was likely caused by the Know Before You Owe initiative which is lengthening closing times and may have pushed some transactions into December.
“Sparse inventory and affordability issues continue to impede a large pool of buyers’ ability to buy, which is holding back sales,ˮ said Lawrence Yun, NAR chief economist.
“However, signed contracts have remained mostly steady in recent months, and properties sold faster in November. Therefore it’s highly possible the stark sales decline wasn’t because of sudden, withering demand.ˮ
According to Yun, although Realtors are adjusting accordingly to the Know Before You Owe initiative, the main takeaway so far has been the need for longer closing times.
According to NAR’s Realtors Confidence Index, 47 percent of respondents in November reported that they are experiencing a longer time to close compared to a year ago, up from 37 percent in October.
“It’s possible the longer timeframes pushed a latter portion of would-be November transactions into December,ˮ said Yun. “As long as closing timeframes don’t rise even further, it’s likely more sales will register to this month’s total, and November’s large dip will be more of an outlier.ˮ
The Consumer Financial Protection Bureau issued Know Before You Owe rules late last year. The rules created new mortgage disclosure forms and procedural requirements to help consumers better understand the key terms of mortgage loans, and to make loan offers more easily comparable. The rules began being applied to mortgage applications August 1, 2015.
“Realtors worked hard to prepare for Know Before You Owe, and we knew there would be some near-term challenges as the industry continues to adapt,ˮ said NAR president Tom Salomone, broker-owner of Real Estate II Inc. in Coral Springs, Florida.
“Nonetheless, an early trend of longer lead times to closings is cause for concern. As Realtors report issues with their transactions, we will continue to work with the Consumer Financial Protection Bureau to ensure as little disruption as possible to the business of real estate.ˮ
According to Freddie Mac, the average commitment rate for a 30-year, conventional, fixed-rate mortgage hovered below 4 percent for the fourth consecutive month but increased in November to 3.94 from 3.80 percent in October. A year ago, the average commitment rate was 4.00 percent.
“The Federal Reserve’s decision this month to raise short-term rates is the first of many increases over the next couple of years,ˮ said Yun.
“Although this first move will likely have minimal impact on mortgage rates, additional hikes will push borrowing costs to around 4.50 percent by the end of next year.
“With home prices expected to continue rising, wages and new home construction need to start increasing substantially to preserve affordability.ˮ