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Despite Record Low Rates, New Home Sales Fall, Experience Biggest Price Decline in Two Years
By Michael Kraus on September 26, 2011

According to information released by HUD and the Census Bureau this morning, new home sales fell 2.3% in August to an annual rate of 295,000. The average sale price of new homes was $246,000, and the median sales price of new homes was $209,100. This represents a year-over-year decline of 7.7%, the largest year-over-year drop since 2009.

The reasons for weak sales remain the same as they have been for the past two years: continuing high unemployment, tight credit and stricter underwriting standards, the relatively low cost of distressed properties, and a glut of homes for sale.

Sadly, these same factors have been restraining the housing market for at least two years, and no effective steps have been taken to alleviate these problems. There are so many discounted and distressed properties on the market that there is relatively little demand for new construction, and the pool of people that can even consider building a new home has been dramatically reduced by the economy.

That this is occurring while mortgage rates are at 60 year lows does not inspire a lot of optimism for the housing market in the near future, especially as the winter approaches.

Category: Mortgage Rates
Home Sales Fall as First Time Home Buyers Wait on Sidelines
By Michael Kraus on June 21, 2011

Existing home sales plummeted 3.8 percent in May according to new information from the National Association of Realtors. Existing home sales are now down 15.3 percent compared to the May 2010 pace. The national median home price for an existing home was $165,500 in May, which is down 4.6 percent year-over-year. Lawrence Yun, eternal optimist and Chief Economist for the NAR commented:

“Current housing market activity indicates a very slow pace of broader economic activity, but recent reversals in oil prices are likely to mitigate the impact going forward. The pace of sales activity in the second half of the year is expected to be stronger than the first half, and will be much stronger than the second half of last year. Even with recent economic softness, this is a disappointing performance with home sales being held back by overly restrictive loan underwriting standards. There’s been a pendulum swing from very loose standards which led to the housing boom to unnecessarily restrictive practices as an overreaction to the housing correction – this overreaction is clearly holding back the recovery.”

The number of first time home buyers is down significantly, despite low rates. First time buyers now make up 35 percent of all home sales, compared to about half of all buyers in a healthy market. This can be attributed to the uncertain employment situation driving low rates of household formation. Falling home prices, increasing student loan debt, tight credit, restrictive underwriting guidelines, and stagnant real incomes are also keeping new home buyers on the sidelines for the foreseeable future.

Continue Reading…

Category: Mortgage Rates
New Home Sales Jump in March, Still Hovering Near All-time Lows
By Michael Kraus on April 25, 2011

According to the Census Bureau and The Department of Housing and Urban Development, new home sales jumped by 11.1% in March, rising to an annual pace of 300,000 homes, up from a pace of 250,000 in February. The February mark was the record low since the beginning of this report in 1963. Despite the increase, this is still 21.9% below the March 2010 pace of 384,000 homes sold.

New home sales have declined for five straight years, and will likely continue to decline or stagnate until the market absorbs the massive supply of excess distressed and normal homes. Earlier today we learned that distressed homes made up nearly half of all homes sold in March, so this process is currently taking place. However, it will likely take years for the market to recover and for people to buy these homes.

The months it would take to absorb the supply of new homes fell from 8.2 months in February to 7.3 months in March. 6 months is considered normal, and the all-time high was 12.1 months in January 2009. The housing market still has a long way to go before it recovers.

Category: Mortgage Rates
New Home Sales Remain Depressed
By Michael Kraus on October 27, 2010

The Census Bureau and the Department of Housing and Urban Development released their New Home Sales report this morning. According to the report:

“Sales of new single-family houses in September 2010 were at a seasonally adjusted annual rate of 307,000, according to estimates released jointly today by the U.S. Census Bureau and the Department of Housing and Urban Development. this is 6.6 percent above the revised August rate of 288,000, but is 21.5 percent below the September 2009 estimate of 391,000″.

Despite the fact that new home sales are up month-over-month, the year-over-year number is far more telling. We are 21.5 percent below where we were a year ago, and I’ll remind you that September 2009 was not exactly a banner month for the housing market. As a matter of fact, we are only slightly above the all-time record low for new home sales. This is another bad showing for the housing market.

The supply of new homes did decrease from 8.6 months of supply in August to 8 months of supply in September. Normally there is about 6 months of supply in a normal market. The reduction of supply is a good thing, but supply is still very high from a historical perspective. Additionally, new homes sales currently comprise only about 10 percent of the market, so any gains here have a relatively minor effect on the market as a whole. Only when we start clearing the glut of existing homes from the market will a housing recovery begin in earnest.

Category: Mortgage Rates
New Home Sales Level, Close to All-Time Low Pace
By Michael Kraus on September 24, 2010

What’s that you say? You wouldn’t be able to survive the weekend without hearing one more poor housing report? Well you’re in luck: Housing and Urban Development (HUD) released its New Homes Sales report this morning. Seasonally-adjusted, new home sales are essentially unchanged from July, at an annual rate of 288,000 sales, but are down 28.9 percent from August 2009 (which I will remind you wasn’t a very good year either).

Want some more bad news? According to the fine people at Calculated Risk, the number of new homes sold in August 2010 (25,000) is a new all-time low. Furthermore, we are close to the all-time lowest projection for new home sales ever (currently on pace for 288,000 sales, in May 2010 we were on pace for 282,000 sales). Presently there is an 8.6 month supply of new homes on the market, down from the all-time high of more than 12 months of supply in early 2009, but still very high by historical standards.

What does all this mean? Well for one thing it means that we are unlikely to see a rebound in the construction sector anytime soon. The housing market has traditionally lead the economy out of recession, but that is not happening right now. Those employed in the construction industry have been particularly hard-hit by unemployment during the recession, and that does not look to change in the near-term. Additionally, we can expect the see further declines in home values for the next few months.

Category: Mortgage Rates
New Home Sales Hit Record Low Despite Lowest Mortgage Rates on Record
By Michael Kraus on August 25, 2010

The bad news train continues down the track…

New report from The Census Bureau today that says that new home sales in July 2010 hit an all-time low. We are on a pace to see 276,000 new home sales this year, a decrease of 12.4 percent from the June pace and a whopping 32.4 percent from the previous year.

There is not a whole lot more to say about this report, other than it affirms the idea that the economy seems to be decelerating. There is a whole lot of housing supply out there (more than 12 months worth), and more on the way as foreclosures increase and REO inventory builds with lenders. Compounding this issue is that there aren’t many people to buy these homes. Rising supply + falling demand = lower prices.

If you want to see it represented graphically, take a look at this chart from Calculatedrisk.com. It’s an awesome site which I wholeheartedly recommend. Maybe this will be the mother of all inverse head and shoulders, but right now it looks like the dreaded second leg down for housing. Look out below.

Category: Mortgage Rates
Home Sales Increase in June as Mortgage Rates Hit All-Time Low
By Michael Kraus on July 26, 2010

New home sales increased in June 2010 to an annual pace of 330,000, a 24 percent increase from May, when new home sales cratered to the second-lowest pace since 1963.

The cratering of new home sales can be attributed to a hangover effect from the first time home buyer tax credit, among other things. The credit appears to have accelerated home sales from the summer and fall into the spring. Upon the expiration of the bill, home sales promptly cratered, raising questions about the wisdom and value of the tax credit.

Almost simultaneously, mortgage rates hit all time lows, as scared investors fled the stock market for the bond market, causing yield spreads on treasury debt to collapse, pulling down mortgages rates in the process. Low mortgage rates may have compelled some hesitant buyers to make the plunge into homeownership.

Despite the uptick in demand, the massive overhang of housing industry is putting downward pressure on home prices, which in turn robs homeowners of equity and may be causing a spiral that some believe will result in further declines in the housing market. We will learn more about what is happening regarding home prices when the Case-Shiller home price index comes out later this week.

Some are saying this report indicates that the downturn caused by the expiring tax credit is over. Still others point out that this is the worst June for new home sales on record. I’m more inclined to agree with the bears than the bulls, and I think this report reflects hugely volatile market conditions more than anything else. What do you think? Let us know in the comments section below.

Category: Mortgage Rates
Despite Low Mortgage Rates, New Home Sales Crash to Record Low
By Michael Kraus on June 23, 2010

If you are being pursued by a bear market, one of the best strategies is to play dead.

Well, May did not shape up to be a very good month for the economy. Consumer spending is starting to flag. Unemployment remains stubbornly high, and employers unexpectedly cut payrolls. Mortgage applications are at a thirteen year low, and now this: the new home sales report from the Census Bureau reports that new home sales collapsed in May, falling almost 33 percent from the previous month to the lowest levels on record. The census bureau has been reporting on this information since 1963.

Year-over-year sales were down 18.3 percent from May 2009, and the median sales prices of a home dropped 9.6 percent from May 2009. We are on an annual pace to sell 300,000 homes this year, substantially less than economists’ median expectations.

Once again, this appears to be attributable to the first time home buyer tax credit, which expired on April 30th. It pulled home sales from the fall and summer into the spring, and we are now seeing the ramifications of the credit.

Mortgage rates remain near historic lows, and yet the economy is not kicking into gear. The Federal Reserve concludes a two day meeting today, and it will be interesting to see their stance on the economy and what should be done with monetary policy. Many speculate that with interest rates near zero, there is not a lot of action the Federal Reserve can take.

Many commentators, including Barry Ritholtz of the awesome blog The Big Picture believe that we are in the midst of a second leg down in the housing market. If this is the case, we can probably expect to see more price adjustments and weak economic numbers in the near future.

Category: General
New Home Sales Skyrocket Upward
By Dave Jefferlone on April 29, 2010

New home sales for March 2010 spiked up 27 percent from February, according to numbers released last Friday by the Commerce Department. It was the highest percentage gain form the prior month in almost 47 years.

Also increasing from a year ago was the median sales price of a new home which rose 4.3 percent, to $214,000

Is the housing market improving, or is this irrational exuberance driven by a last-minute rush to cash in on the Federal Tax Credit for purchase a home, which will expire tomorrow? Borrowers are hurrying to take advantage of these historically low mortgage interest rates which are still below 5 percent for a 30-year fixed rate mortgage. Also, to qualify for the tax credit, they must have an executed signed sale contract by April 30, and close by June 30.

The good news is new home sales were up in all four regions of the country, led by the South, which saw an increase of 44 percent, followed by the Northeast at 36 percent. Lagging way behind yet still in positive territory, were the West at 6 percent and the Midwest at 4 percent.

Existing home sales for March should be released early next week and I expect a similar spike in existing home sales over February.

The real indication to the extent of the housing recovery will be contracts signed and executed after the expiration of the tax credit. Current mortgage interest rates should still be at or near historically low levels in the foreseeable future, yet will probably not be enough to sustain the sales numbers we have seen in the recent months with the availability of the tax credit.

Category: Mortgage Rates
New Home Sales Surge 27 Percent
By Robert Hyder on April 23, 2010

As the $8,000 first-time home buyer tax credit and the $6,500 move-up home buyer tax credit are set to expire one week from today if prospective buyers do not have a signed purchase agreement by April 30, new figures released this morning indicate new home sales spiked 27 percent for the month of March, significantly more than originally forecasted. The Commerce Department said the dramatic increase in new homes sales in March was the largest recorded growth from one month to the next in 47 years, and interestingly, the figures indicated an increase in every region in the country.

Housing analysts believe the significant increase in new home sales in March is attributed to buyers seizing the opportunity to benefit from the tax credits before they expire. That said, it would not be surprising to see this trend of home sales spiking continue through June.

If you’re wondering how new home sales can continue to surge through June if the tax credits will expire in a week, it’s due to the closing date requirement of June 30 in order to qualify for the federal tax credits. As long as a purchase agreement is signed by April 30, potential homeowners have until June 30 to close on their new home to collect on the popular tax credit.

It is highly probable the anticipated surge through June will drastically fall off come July. The tax credits will artificially keep the new home sales figures elevated for the next couple of months, similarly to the Federal Reserve’s strategy to keep mortgage rates artificially low by committing to purchase $1.25 trillion in mortgage-backed securities. Once that program ended at the end of March, it was no surprise to see mortgage rates begin to rise almost immediately.

As mentioned earlier, new homes sales rose in every region nationwide. The South witnessed the largest surge with nearly a 45 percent increase, while the Northeast soared over 35 percent. The Midwest and West regions of the United States garnered increases of only single digits, which is not nearly as significant as the aforementioned. Nationally, existing home sales jumped almost 7 percent.

The housing market remains fragile, and the government’s intervention is distorting any potential positive news. That is not to say the government involvement was not necessary; it absolutely was. But rather, the government’s intervention will only alter any genuine economic growth until they cease participation.

Robert Hyder

Category: Mortgage Rate Trends and Analysis