Signs of a strengthening housing market continue to surface, with single family new home sales reaching their highest level in nearly five years during May.
The Commerce Department reports that sales increased 2.1 percent to a seasonally-adjusted annual rate of 476,000 units — the highest level since July 2008.
Third Straight Month for New Home Sales Gains
May also marks the third straight month of gains in new home sales.
“Builders are reporting increased demand for new homes as buyers seek to take advantage of historically low mortgage rates while they remain so favorable,” said Rick Judson, chairman of the National Association of Home Builders (NAHB). “Consumers in markets nationwide are definitely becoming more confident about making a home purchase as firming prices and tighter inventories provide further evidence of the ongoing housing recovery.”
The big uncertainty, however, pertains to how increasing interest rates will affect the recovery. Housing analysts expect a slowdown in home price gains — and possibly a loosening of tight inventories.
Even above 4 percent, mortgage rates remain historically low — even though chances are slim to none that the 30-year fixed rate will again see its all-time low of 3.31 percent.
Three out of four regions posted sales gains in May, with double-digit increases of 20.7 percent and 40.7 percent in the Northeast and Midwest, respectively, and a more moderate 3.6 percent gain in the West. The South posted a 9.0 percent decrease following an unsustainably large gain in the previous month.
The inventory of new homes for sale edged up slightly to 161,000 units in May, which is a 4.1-month supply at the current sales pace.
“The latest report confirms that the improvement we have been seeing in housing markets over the past year continues to take place at a gradual and steady pace,” said NAHB Senior Economist Robert Denk. “We expect to see more of this positive momentum in the coming months, tempered by the caution that builders are exercising to avoid getting ahead of demand along with ongoing constraints they face with regard to the availability of credit, materials, lots and labor.”
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New Home Sales Down in June
When new home sales drop in the month of June, it’s cause for concern. June is traditionally one of the best months of the year for home sales, but the fact that June sales numbers were down after several months of increases, tends to indicate there are some underlying economic fundamentals that have just not recovered as much as first thought.
New home sales fell to 350,000, setting a five-month low in June. Economists had expected new home sales to inch up slightly from the preliminary sales report in May. May sales were revised up to 382,000 from the originally reported 369,000.
The report is a disappointment for the housing sector, which had seen some encouraging signs in recent data on builder confidence and housing starts. The 8.4 percent month-over-month drop in sales was the steepest since sales fell 11.4 percent from January to February 2011.
The June new home sales drop comes on the heels of another recent report from the National Association of Realtors that existing home sales fell in June to an eight month low, falling for the fourth time in five months.
June also saw a decline in the sales of existing homes. Home builders, however, remain optimistic. NAHB Chief Economist David Crowe said the lower number of new-home sales in June represents an adjustment from a robust level of activity in May, “yet overall results for the second quarter show we are still on track for continued improvement.”
Some economists are blaming a steady decline in the level of housing inventory for the drop in sales.
Since sales figures are a couple of months behind, it will be September and October before we know whether the traditional summer selling season was a bust or a boom. We’ll update you again in our September and October newsletters on July and August numbers. But heading into the elections in November, the economy certainly appears to be the number one issue for the candidates this time around. We’ll keep you posted.
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Home Refinancing: What You Need to Know
Mortgage refinancing means getting a new mortgage to replace your old one with the goal of reducing monthly payments, lowering your interest rate, or taking cash out of your home for other purchases.
According to the Mortgage Bankers Association, the average American refinances his or her mortgage every four years. With interest rates continuing to go lower and lower almost weekly, it’s no wonder so many people are trying get their mortgage refinanced.
The most popular reason for refinancing is to get a better interest rate. You can save a considerable amount of interest by just lowering your rate a point or two over a 30 year loan. For example, you have a $250,000 mortgage with a 30-year fixed rate of 6 percent. Your monthly mortgage payment is approximately $1,500. If after four years of owning your home you refinanced to a mortgage with an interest rate of 4 percent, your monthly mortgage payment would be $1,300 – a savings of $200 per month.
Another popular reason for mortgage refinancing is to switch mortgage types. Maybe you have an adjustable rate mortgage because that’s all you qualified for 5 years ago, and now the rate is about to adjust, and you want to switch to a fixed rate term. Likewise, maybe you have a 6 or 7 percent fixed rate mortgage and want to switch to the attractive rates an ARM offers.
Some people use mortgage refinancing to take some cash out of the equity they’ve built up in their home. Although more and more people are finding they have lost a lot of the equity they once had because home values have dropped so much over the past 5 years, many people are still fortunate enough to have the equity necessary to refinance and take cash out to pay for other things.
Is Refinancing Right For You?
Before you contact a lender, make sure it makes sense for you. Ask yourself these questions:
How long will I be in my home? The general rule is that unless you are planning to stay in your home at least another five years, then refinancing may not make sense.
Is there a prepayment penalty on my current mortgage? Since many mortgages carry a penalty if you pay off your existing mortgage, find out if you will be charged a “prepayment penalty.”
What are the costs of the new mortgage? Lenders almost always charge fees for taking out a new loan. Unless your new rate is at least a half a percentage point lower than your current rate, the fees may eat up your potential savings.
Can I reduce my monthly payments? For those whose cash flow has changed, refinancing for a longer term will likely lower your monthly payments. This will increase interest owed, but it could provide relief given a new set of financial considerations.
Can I cash out some of my equity? Taking out a new mortgage with a larger principal could provide a cash infusion for a major project or other needs. The advantage is that you can get a lower interest rate than if you used a credit card or an unsecured loan for the cash. This makes sense if the current interest rate is lower than your existing rate.
Whether or not refinancing is right for you depends on your individual circumstances. Just make sure you do the math and understand how the new loan will affect you.
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Is The Housing Crisis REALLY Over?
The news on the housing front has been mostly positive for the past few months, making many analysts and forecasters say, “The housing crisis has finally ended.” But has it?
The country is still mired in record levels of personal debt, and more than 50% of the population is upside down in their homes and basically stuck in them for the foreseeable future. Add to all that the worsening crisis in Europe and Greece along with the instability of the Euro and you have the makings for a double-dip housing crisis.
A recent poll by Reuters shows most economists thinking the housing market has bottomed and prices should rise nearly 2 percent for 2013 after a mostly flat 2012. The main thing holding the market back now is the lack of any growth in the labor market.
In nearly every city in the U.S. it now costs less to buy a home than it does to rent. But many would-be homeowners can’t buy. They are virtually locked out of the market because they don’t qualify for a mortgage due to the strict underwriting standards. Some believe this credit freeze is only going to get worse.
Still, there’s no doubt that in most places the housing market appears to have bottomed out and is now gathering strength. We’ll stay on top of the market and pass the most up-to-date housing news to you here, good or bad. Stay tuned!
According to the U.S. Census Bureau, the pace of new home sales rose in January, exceeding forecasts and revised the December stats to reflect a higher rate of home sales, all of which is good news for a suffering new home construction sector. This growth is in line with recent reports of builder confidence levels rising across the nation.
New Home Sales Inventory
The inventory levels of new homes for sale fell, marking the eleventh consecutive month of decreasing supply levels. The current supply sold at the current sales pace represents a 5.6 month supply, down considerably from the 7.2 month supply just one year ago. Compared to January 2011, the number of new homes sold has risen 3.5 percent nationally with particularly strong sales in the South which has increased 15 percent.
The median number of months a new home sits for sale after completion is at 7.1 months, down from 7.4 months last January and down dramatically from the peak last summer of 10 months.
More Buyers Paying Cash
Meanwhile, even more American homebuyers are paying cash to acquire homes, according to a new survey from Campbell/Inside Mortgage Finance. The group’s Housing Pulse Tracking Survey said between October and January, the number of homeowners purchasing residences with cash grew from 30.8% to 34.1%.
This trend is occurring at a time when mortgage rates are holding low. The survey noted that all-cash buyers are getting discounts of approximately 10%.
Homebuyers who turned to cash purchases are doing so because of the slow underwriting process, late appraisals and long-wait times when dealing with certain loans, the report said.
In most areas of the country, it is taking about 60 days to close a non-troubled FHA loan. About 30 days longer than usually a year ago.
To release its report, the Campbell/Inside Mortgage Finance Housing Pulse Tracking survey interviewed 2,500 real estate agents across the country.
According to the U.S. Census Bureau, new home sales rose 1.3 percent in October from September and are up 8.9 percent from October 2010, and although the rate fell short of economists’ forecasts, improvement in the hardest hit sector is welcomed by new home builders in any form. The month ended with a 6.3 month supply at the current rate of sale and a median sale price of $212,300.
The National Association of Realtors (NAR) reported recently that existing home sales for October were up, while the number of homes on the market as well as prices are declining. With Freddie Mac reporting mortgage interest rates have dropped below four percent again, all of these indicators may improve November’s figures, despite weather conditions that often slow the market in select regions.
Additionally, the U.S. Commerce Department reported recently that single family housing starts rose 3.9 percent in October, but the improvement was masked by an 8.3 percent drop in multifamily starts that kept national housing production essentially flat in October up only 0.3 percent. Single family home permits issued rose to its fastest pace since December 2010, up 5.1 percent for the month, a forward-looking economic indicator that is used to consider what starts will look like in the future. The multifamily sector saw a 24.4 percent increase in permits issued, hinting at a continuing multifamily rollercoaster of volatility.
Housing starts for single family combined with multifamily was up 17.2 percent in the Northeast, 9.7 percent in the Midwest and 1.6 percent while starts dropped 16.5 percent in the West. Permits dropped in the Northeast 1.6 percent and 3.7 percent in the Midwest but rose 5.4 percent in the West and 21.5 percent in the South.