With fewer homes available for sale, new home construction becomes very important to maintaining a balanced housing market. Where new homes are going up, prices are less likely to spike and home buyers have more options to choose from. That’s why the latest new home construction data from the U.S. Department of Housing and Urban Development and the Commerce Department is so encouraging. According to their latest release, the number of new homes that began construction in October was 13.7 percent higher than the month before. Not only that, housing starts are now near their post-recession high. Granger MacDonald, chairman of the National Association of Home Builders, says the improvement coincides with reports of increased confidence among home builders. “This uptick in housing production is aligned with our reports of strong builder confidence,” MacDonald said. “Our members are optimistic about the future of the housing market, even as uncertainties remain and they continue to face supply-side issues.” In short, economic gains have boosted interest in buying a home. And, though the real estate market continues to face challenges, builders are confident that buyer demand will remain high. More here.
Archive for Real Estate
Home sales increased in October, rising in each of the country’s four major regions, according to the National Association of Realtors. Their monthly measure of how many existing homes were sold showed a 2 percent increase over the previous month – which brings sales to their fastest pace since June. Lawrence Yun, NAR’s chief economist, said the housing market is benefiting from a strong job market and increasing wages. “Job growth in most of the country continues to carry on at a robust level and is starting to slowly push up wages, which is in turn giving households added assurance that now is a good time to buy a home,” Yun said. “While the housing market gained a little more momentum last month, sales are still below year-ago levels because low inventory is limiting choices for prospective buyers and keeping price growth elevated.” For fall buyers, low inventory means good homes may not stay on the market very long. In fact, the NAR’s research found 47 percent of homes sold in October were on the market for less than a month. More here.
The housing market and economy are tied together in many ways. After all, without a strong economy and consistent job growth, people generally don’t feel good enough about their financial prospects to consider buying a house. But though one affects the other, they aren’t always moving in the same direction at the same time. Take Fannie Mae’s most recent Economic and Housing Outlook from their Economic & Strategic Research Group. The group’s monthly forecast takes a look at how the economy and housing market are doing and what prospects look like for the future. According to their most recent release, the economy is performing better than expected and has caused them to increase their forecast for economic growth this year. But though that’s definitely good news, it is dampened by the fact that – while Americans are feeling economically confident – too few homes for sale have caused the housing market to soften. Doug Duncan, Fannie Mae’s chief economist, says there are a number of issues holding housing back. “Housing still remains a drag on the economy, as shortages of labor and available lots, coupled with rising building material prices, further complicate existing inventory, affordability, and sales challenges.” More here.
The argument for or against buying a home usually rests, to some extent, on wealth creation. Conventional wisdom says homeowners – through equity and price appreciation – are building wealth, while renters are throwing their money away each month. Of course, there are some notable instances where that basic argument seemed discredited. Take the most recent financial crisis and housing crash, for example. Following the crash, many people began to question the typical arguments in favor of homeownership, as homeowners saw their home values plummet. Now, a new study from Florida Atlantic University, Florida International University, and the University of Wyoming says homeownership offers no financial advantage when compared to renting and investing in a portfolio of stocks and bonds. However, the study’s findings are based on an assumption that renters will use any extra money, not on consumption, but on investing for the future. According to the results, “The analysis showed that households that are likely to not reinvest buy-rent cash differentials should mostly own rather than rent their primary residence as ownership forces them to save.” In other words, you can create wealth while renting, if you’re disciplined and invest wisely. If not, buying is a better deal. More here.
The National Association of Home Builders’ Housing Market Index measures how confident home builders are in the current and future market for new homes. The survey – which has been conducted for 30 years – is considered a good barometer of the housing market’s health, as it can be used to forecast the likelihood that builders will increase the number of homes they build. Scored on a scale where any number above 50 indicates more builders feel the market is in good condition rather than poor, the index is conducted monthly and concentrates on buyer traffic, sales conditions, and expectations for the next six months. In November, the HMI rose to 70, which is the highest score since March of this year and the second highest level since July 2005. Robert Dietz, NAHB’s chief economist, says it’s a sign that the market will continue to grow. “Demand for housing is increasing at a consistent pace, driven by job and economic growth, rising homeownership rates and limited housing inventory,” Dietz said. “With these economic fundamentals in place, we should see continued upward movement of the single-family housing market as we close out 2017.” More here.
These days, the thing driving home prices upward is a lack of homes for sale. Where there are more interested home buyers than available homes to buy, prices rise. Of course, the quickest solution to this problem is building more homes. Prices will begin to moderate when more new homes are being built and buyers have more choices. That’s why there’s been so much attention paid lately to builder confidence, new home sales, and housing construction numbers. In short, the new home market is important to home buyers and sellers regardless of whether they are buying a brand new home or an older one. One recent measure of the new home market is the Mortgage Bankers Association’s Builder Application Survey – which measures mortgage application demand for new home purchases. The survey’s most recent results show a 16.1 percent year-over-year improvement from October 2016 and a 23 percent increase over September’s results. The improvement indicates there’s been a surge in demand to buy new homes, which is good news for the market. Lynn Fisher, MBA’s vice president of research and economics, says the increase is the strongest this year, though some of that is due to the recent hurricanes. “October registered the strongest growth rate in applications so far this year, following September’s hurricane related decrease,” Fisher said. More here.
Along with rising home prices, there has also been increasing concern that the housing market may be entering a bubble. And that’s not surprising, considering the housing crash is still fresh in peoples’ memories. So as home prices reach or exceed previous highs, potential buyers and current homeowners are naturally concerned about the possibility of another housing bubble and crash. According to a recent analysis from Freddie Mac, however, there is a pretty good reason to doubt that today’s price spikes are, in fact, evidence of an emerging bubble. Put simply, one of the primary reasons bubbles form is a perception that home prices will always rise. This causes investors to bid prices up and some mortgage lenders to offer easier credit. In short, a bubble isn’t real. Today’s price increases, on the other hand, are being driven by a lack of for-sale inventory and slower-than-normal new home construction. That means, it is more likely that prices aren’t being driven upward by irrational confidence but, instead, are being driven by an unbalanced market. “The evidence indicates there currently is no house price bubble in the U.S., despite the rapid increase of house prices over the last five years,” Freddie Mac’s chief economist Sean Becketti said. “However, the housing sector is significantly out of balance.” More here.
Traditionally, the argument for homeownership over renting had more to do with the long-term financial benefits of owning a home and establishing roots in the community. Renting was easier and cheaper but had few of the added perks that homeowners enjoyed. These days, however, renting doesn’t necessarily mean you’ll have less of a financial burden. In fact, in some markets, you’ll even need a higher credit score to rent than you would to qualify for a mortgage. New research shows that the average credit score needed to rent an apartment nationally was 650 but, in some markets, the required score reached well over 700. And while the required credit score varies greatly depending on the type of property and the particular market, it is further evidence that the debate over whether to rent or buy isn’t that clear cut. In other words, potential home buyers who feel they may not be able to afford homeownership should explore their options first, as they may find that buying a home is both a better deal in the short and long term. More here.
Not surprisingly, affordability ranks high among home buyers’ concerns. Rising prices and rumors of future mortgage rate increases have some prospective buyers questioning whether or not they can handle the financial obligations that come along with homeownership. However, new data from the National Association of Home Builders says, in most markets, they can. That’s because, the NAHB’s quarterly measure of affordability found 58.3 percent of new and existing homes sold between the beginning of July and the end of September were affordable to families earning the median income of $68,000. That’s encouraging news for hopeful home shoppers. And, according to Robert Dietz, NAHB’s chief economist, there are a rising number of them hoping to take advantage of conditions while they’re still favorable. “Solid economic growth, along with ongoing quarterly job gains and rising household formations, are fueling housing demand,” Dietz said. “Tight inventories and a forecast of rising mortgage interest rates through 2018 will keep home prices on a gradual upward path and slowly lessen housing affordability in the quarters ahead.” More here.
Coming up with a down payment strategy can be difficult for some buyers – especially first-time home buyers who don’t have the benefit of a home to sell. In fact, among first-time home buyers, nearly 60 percent put less than 20 percent down on their house. And while that can be a good option for some buyers, it does have downsides. For one, smaller down payments typically mean you’ll have to pay mortgage insurance. It also means you may be edged out when making an offer on a home. Data from Zillow shows that buyers with larger down payments are more likely to get their offer accepted. On the other hand, waiting to save a larger down payment means risking an increase in home prices that makes it so you can’t afford next year what you could afford right now. What is the best move for today’s buyer? Well that depends a lot on their personal financial situation and how much they already have saved. But, according to Zillow, the median home will be worth just over $6,000 more next year at this time – which means you’ll have to save an additional $105 per month to cover the rise in prices. More here.