The Mortgage Corner
Sales of new single-family houses are barely budging from their recession lows. But pending home sales for September nudged up to the highest this year, which is a sign that record low interest rates are bringing buyers back into the market.
Pending sales rose slightly in September and are now above year-over-year levels for the first time in 11 months, according to the National Association of Realtors.
The Pending Home Sales Index inched 0.3 percent to 105.0 in September from 104.7 in August, and is now 1.0 percent higher than September 2013 (104.0). The index is above 100 for the fifth consecutive month and is at the second-highest level since last September, reports the National Association of Realtors.
Lawrence Yun, NAR chief economist, says moderating price growth and sustained inventory levels are keeping conditions favorable for buyers. “Housing supply for existing homes was up in September 6 percent from a year ago, which is preventing prices from rising at the accelerated clip seen earlier this year,” he said. “Additionally, the current spectacularly low mortgage rates should help more buyers reach the market.”
Despite improved housing conditions and low interest rates (as low as 3.625 percent for the conforming 30-yr fixed rate today), tight credit conditions continue to be a barrier for some buyers. Of the reasons for not closing a sale, about 15 percent of Realtors in September reported having clients who could not obtain financing as the reason for not closing.
Yun says the final rule on Qualified Residential Mortgages should improve access to credit once it goes into effect next year. “The rule provides clarity for lenders and is a win for creditworthy consumers by ensuring they continue to have access to safe and affordable loan products without overly burdensome down payment requirements,” he said.
And Mel Watt, the newly appointed Director of FHFA that oversees Fannie Mae and Freddie Mac just announced he would be easing credit standards for the largest guarantors of residential mortgages.
But it is a two-edged sword, according to pundits. Watt said that Fannie and Freddie are working to develop “sensible and responsible” guidelines that will allow them to buy mortgages with down payments as low as 3 percent, instead of the 5 percent minimum that both institutions currently require. But lenders will not have to retain earnings to cover any losses, which means they could again begin to offer subprime mortgages (but that are not sold to Fannie or Freddie).
This change would apply to a “targeted segment of creditworthy borrowers” and take into account “compensating factors,” Watt said. (Housing experts speculate that maybe the lower down payments would only be offered to first-time buyers.) More details to come in the weeks ahead, Watt added.
But these provisions should boost sales to first time homebuyers, in particular who might not be able to afford larger down payments.
Sales of newly built, single-family homes inched up 0.2 percent in September to a seasonally adjusted annual rate of 467,000 units, the highest level in six years. Sales numbers for August were revised down from 504,000 to 466,000.
“Three consecutive months of sales upticks demonstrate steady growth in the housing market,” said Kevin Kelly, chairman of the National Association of Home Builders (NAHB). “Consistent job creation and low mortgage interest rates are spurring the release of pent-up consumer demand.”
So new-home sales have to improve, as well, to enlarge the housing inventory. Right now, most housing construction is now multi-family dwellings to absorb the increasing demand for rental housing.
Harlan Green © 2014
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