NAR: Historically Low Mortgage Rates Spurs Increase in Home-Buying...

Budged by historically low mortgage rates, existing-home sales sprang up 2.5 percent, according to the July National Association of REALTORS® report, released today. July’s sales totaled 5.42 million, an 0.6 percent bump year-over-year. 

In July, the average 30-year fixed mortgage rate was 3.77 percent, according to Freddie Mac, compared to 3.8 percent in June, and the average 4.54 percent in 2018. 

“Falling mortgage rates are improving housing affordability and nudging buyers into the market,” explains Lawrence Yun, chief economist at NAR. However, while “mortgage rates are important to consumers…so is confidence about the nation’s overall economic outlook. Home-buying is a serious long-term decision, and current low or even lower future mortgage rates may not in themselves meaningfully boost sales unless accompanied by improved consumer confidence.”

Challenges continue on the inventory side, as well, which could hinder progress, Yun says. According to NAR’s report, inventory in July slid to 1.89 million, down 1.6 percent year-over-year.

Additionally, in an analysis of 13 of the largest markets in the U.S., entry-level homes purchased in 2012 and sold in 2018 appreciated more than 100 percent in at least four: Atlanta, Denver, Miami and Tampa, according to NAR researchers. In that same time, higher-end home prices rose slower, compounding first-time homebuyer woes. “The shortage of lower-priced homes have markedly pushed up home prices,” says Yun. “Clearly, the inventory of moderately-priced homes is inadequate and more home-building is needed.”

Choices could open up this year, according to Yun, thanks to FHA’s finalizing of a new rule, which is anticipated to boost condominium inventory—a critical gateway for homebuyers. “Some new apartments could be converted into condominiums, thereby helping with the supply, especially in light of new federal rules permitting a wider use of Federal Housing Administration (FHA) mortgages to buy condo properties,” Yun says. “This change will begin benefiting buyers, sellers and our members as soon as this fall,” says NAR President John Smaby.

Across all house types (single-family, condo

, co-op and townhome), July’s median price was $280,800—a 4.3 percent increase year-over-year, NAR’s report reveals. The median price for sales in the single-family space was $284,000, while the condo median was $254,300. 

Currently, inventory is at a 4.2-month supply, the report shows. In July, the average listing was on the market for 29 days, two days longer than the prior year. Fifty-one percent of homes were on the market for less than one month.

Of July’s sales, 4.84 million were single-family—a climb from 4.71 million the month prior. Condo and co-op sales totaled 580,000, a 3.3 percent decrease year-over-year. Nineteen percent of sales were all-cash, and 11 percent by individual investors or second homebuyers. Two percent were distressed. First-time homebuyers comprised 32 percent of sales.

EXISTING HOME SALES TUMBLE IN DECEMBER

After gaining ground in November and October, existing-home sales fell last month, dropping 6.4 percent to 4.99 million, the National Association of REALTORS® (NAR) reports. On an annual basis, sales toppled 10.3 percent.

Inventory month-to-month slid, as well, but has improved since last year, according to NAR. December inventory was 1.55 million, down from 1.74 million in November but up from 1.46 million in December 2017.

“The housing market is obviously very sensitive to mortgage rates,” says Lawrence Yun, chief economist at NAR. “Softer sales in December reflected consumer search processes and contract signing activity in previous months when mortgage rates were higher than today.”

Mortgage rates have recently reeled in, with the average 30-year fixed at 4.45 percent, according to Freddie Mac—an encouraging indicator for real estate this spring. “With mortgage rates lower, some revival in home sales is expected going into spring,” Yun says.

According to NAR President John Smaby, the government shutdown is also sowing uncertainty.

“The partial shutdown of the federal government has not had a significant effect on December closings, but the uncertainty of a shutdown has the potential to harm the market,” says Smaby. “Once the government is fully reopened, I am hopeful that housing transactions will increase.”

Across all house types (single-family, condo, co-op and townhome), the median price was $253,600, a 2.9 percent increase from the prior year, according to NAR. The median price in the single-family space was $255,200; the condo median was $240,600.

Activity disappointed in every major region of the U.S.:

Midwest Existing-Home Sales: 1.19 million (-10.5% YoY) Median Price: $191,300 (No Change)

Northeast Existing-Home Sales: 690,000 (-6.8% YoY) Median Price: $283,400 (+8.2% YoY)

South Existing-Home Sales: 2.09 million (-8.7% YoY) Median Price: $224,300 (+2.5% YoY)

West Existing-Home Sales: 1.02 million (-15% YoY) Median Price: $374,400 (+0.2% YoY)

Currently, inventory is at a 3.7-month supply, according to NAR. In December, existing-home sales averaged 46 days on market, six days longer than the prior year. Thirty-nine percent of homes were on the market for less than one month.

“Several consecutive months of rising inventory is a positive development for consumers and could lead to slower home price appreciation,” says Yun, “but there is still a lack of adequate inventory on the lower-priced points and too many in upper-priced points.”

Month-over-month, sales in the single-family space tumbled from 4.71 million to 4.45 million, and came in 10.1 percent lower than they were the prior year, when they totaled 4.95 million. Condo and co-op sales sank to 540,000—a 12.9 percent drop month-over-month and an 11.5 percent drop year-over-year. Twenty-two percent of sales were all-cash, and 13 percent by individual investors, according to NAR. Two percent were distressed. First-time homebuyers comprised 32 percent of sales.

The hottest markets, according to realtor.com®’s Market Hotness Index, which is included in NAR’s report, were Chico, Calif.; Midland, Texas; Odessa, Texas; Columbus, Ohio; and Fort Wayne, Ind.

Source: NAR

Mortgage Applications Hit 8 Year High

THE ECONOMY: JANUARY 18, 2019

January 11 ended the first full business week in a while and mortgage activity responded accordingly.  The Mortgage Bankers Association (MBA) reported a strong rebound when, despite a government shutdown, business returned more or less to normal.

MBA's Market Composite Index, a measure of mortgage loan application volume, increased 13.5 percent on a seasonally adjusted basis from the week ended January 4, reaching its highest level since last February.  On an unadjusted basis, the Index was up 45 percent. Purchase mortgage applications moved higher for the sixth time in the last eight weeks, resuming the upward trajectory that was interrupted by the Christmas holidays. That index was up 9 percent on a seasonally adjusted basis to its highest level since April 2010.  The unadjusted Purchase Index rose 43 percent compared with the previous week and was 11 percent higher than the same week one year ago.

The Refinance Index increased 19 percent from the previous week to its highest level since March 2018. The refinance share of mortgage activity increased to its highest level in a year, 46.8 percent of total applications, from 45.8 percent the previous week. In commenting on the improved activity, Mike Fratantoni, MBA Senior Vice President and Chief Economist said, "Uncertainty regarding the government shutdown, slowing global growth, Brexit, a more patient Fed, and a volatile stock market continued to keep rates from increasing. The spring home-buying season is almost upon us, and if rates stay lower, inventory continues to grow, and the job market maintains its strength, we do expect to see a solid spring market. The 11 percent gain in purchase volume compared to last year is a promising sign." Added Fratantoni, "Borrowers with larger loans tend to be more responsive to a given drop in mortgage rates, and we are seeing that so far in 2019. Furthermore, borrowers with jumbo loans are also more apt to take adjustable-rate mortgages as opposed to fixed-rate loans. Thus, it is not surprising to see the ARM share at its highest level since 2014. These borrowers may also feel more confident taking an adjustable-rate mortgage given the expectation of a more patient Fed."

The average size of loans overall increased by slightly less than $10,000 to $328,100.  Purchase loans ticked up from $300,300 to $306,100, and refinance loans averaged $353,100, a survey high. Applications for FHA-backed mortgages accounted for 10.9 percent of the total, up from 10.3 percent the previous week and the VA share decreased to 10.4 percent from 11.6 percent. Applications for USDA loans declined from 0.6 percent to 0.5 percent.

Rates were mixed. The average contract interest rate for 30-year fixed-rate mortgages (FRM) with origination balances at or under the new conforming loan limit of $484,350 was unchanged at 4.74 percent.  Points decreased to 0.45 from 0.47 and the effective rate declined.   The average contract interest rate for 30-year jumbo FRM, loans with balances greater than the conforming limit, ticked up 1 basis point to 4.53 percent.  Points rose to 0.31 from 0.28 and the effective rate moved higher.   

FHA-backed 30-year FRM had an average contract rate of 4.76 percent compared to 4.70 percent the prior week.  Points increased to 0.52 from 0.47 and the effective rate also increased.

Fifteen-year FRM had an average rate of 4.13 percent, its lowest since April, down from 4.16 percent.  Points increased to 0.45 from 0.35, leaving the effective rate unchanged.

The average contract interest rate for 5/1 adjustable rate mortgages (ARMs) increased to 4.08 percent from 4.05 percent, with points unchanged at 0.32. The effective rate increased from last week.  The adjustable-rate mortgage (ARM) share of activity increased to its highest level since October 2014, 9.2 percent of total applications compared to 8.4 percent the previous week.

MBA's Weekly Mortgage Applications Survey been conducted since 1990 and covers over 75 percent of all U.S. retail residential applications Respondents include mortgage bankers, commercial banks and thrifts.  Base period and value for all indexes is March 16, 1990=100 and interest rate information is based on loans with an 80 percent loan-to-value ratio and points that include the origination fee.

BUILDER CONFIDENCE BUOYED BY LOWER RATES

THE ECONOMY: JANUARY 18, 2019

After falling an aggregate of 12 points in November and December the National Association of Home Builders (NAHB)/Wells Fargo Housing Market Index (HMI) appears to have stabilized.  The HMI, a measure of home builders' confidence in the market for newly constructed homes, gained 2 points in January, rising to 58.  This one 1-point higher than analysts polled by Econoday had predicted.

"The gradual decline in mortgage rates in recent weeks helped to sustain builder sentiment," said NAHB Chairman Randy Noel.  "Low unemployment, solid job growth and favorable demographics should support housing demand in the coming months."

The HMI is derived from a monthly survey that NAHB has been conducting for 30 years among its builders who specialize in new residential construction.  The survey asks builders for their perceptions of current single-family home sales and their expectations for the next six months as "good," "fair" or "poor."  Builders are also asked to rate traffic of prospective buyers as "high to very high," "average" or "low to very low." Scores for each component are then used to calculate a seasonally adjusted index where any number over 50 indicates that more builders view conditions as good than poor.

The component measuring current sales conditions rose 2 points to 63, while builder expectations for the next six months increased 3 points to 64.  The index charting buyer traffic, which consistently lags the others edged up one point to 44.

"Builders need to continue to manage rising construction costs to keep home prices affordable, particularly for young buyers at the entry-level of the market," said NAHB Chief Economist Robert Dietz. "Lower interest rates that peaked around 5 percent in mid-November and have since fallen to just below 4.5 percent will help the housing market continue to grow at a modest clip as we enter the new year."

Regional results are presented as three-month moving averages.  The Northeast's moving average fell 5 points to 45; the Midwest and South both declined by 3 points to 52 and 62, respectively; and the West registered a 1-point drop to 67.

The December report on residential construction (construction permits, housing starts, and unit completions) will not be issued tomorrow because of the partial government shutdown.  NAHB estimates that the data would show that single-family starts ended the year totaling 876,000 units, which would mark a 3 percent gain over the 2017 total of 848,900. However, the slowdown in sales during the fourth quarter of 2018 has left new home inventories elevated in some markets.