The Mortgage Corner
Both new and existing-home sales are highest since the end of the Great Recession, thanks to interest rates that are still at historical lows, and in spite of the Fed’s latest 0.25 percent rate hike. It looks like there are still plenty of homebuyers out there—actually, more buyers than homes for sale.
Sales of previously-owned homes surged 5.6 percent to an annual 5.81 million pace in November, the third month of increases and the strongest since December 2006, reports the NAR. Sales were 3.8 percent higher compared to a year ago in November.
This surpassed all predictions, and shows sales are far outdistancing supply. Unsold inventory would take 3.4 months to sell at the current pace, well below the 5-6 months’ worth of supply that normally signals a balanced market.
Lawrence Yun, NAR chief economist, says home sales in most of the country expanded at a tremendous clip in November. “Faster economic growth in recent quarters, the booming stock market and continuous job gains are fueling substantial demand for buying a home as 2017 comes to an end,” he said. “As evidenced by a subdued level of first-time buyers and increased share of cash buyers, move-up buyers with considerable down payments and those with cash made up a bulk of the sales activity last month. The odds of closing on a home are much better at the upper end of the market, where inventory conditions continue to be markedly better.”
This is while housing starts and permits matched their unusual October strength with stronger-than-expected results for November. Starts rose 3.3 percent to a 1.297 million annualized rate and though permits fell 1.4 percent to 1.298 million, they show a 1.4 percent gain for the key single-family category to a 862,000 rate. And starts for single-family homes, up 5.3 percent to 930,000, are the highest of the expansion, since 2007.
Total completions fell 6.1 percent to a 1.116 million rate which is bad news for supply where thin conditions have held back sales. But homes under construction rose, up 1.0 percent to 1.110 million. Regional data show start strength in the West and South where permits were also strong in possible evidence of a hurricane reversal.
“A welcoming trend is developing in the housing sector as builders are able to bring more supply to the market on a consistent basis,” said the NAR chief economist Lawrence Yun. “The latest monthly figure of near 1.3 million annualized housing starts is solid, and the growth is mostly coming both in the West and for single-family homes.
“(But) There is still more room for improvement, as the latest figure is still not yet at the long-term 50-year average of produce 1.5 million units per year. If this rising trend continues, the worst of the supply shortage could soon end, which would help slow price appreciation in 2018. That would be a huge, welcoming relief for renters seeking to become homeowners.”
Why are interest rates still at historical lows, in spite of Fed attempts to tighten credit with their four rate hikes, and more predicted to come? Money is still extremely plentiful and cheap, to put it bluntly. Major central banks are only now beginning to sell the $trillions they have amassed during the various Quantitative Easing programs that would reduce the money supply.
This will continue to boost the housing market, needless to say. The only problem will be affordability for first-time homebuyers. The National Association of Realtors reports they constituted just 29 percent of all buyers in November, down from recent months and well below the long-term average of about 40 percent.
More buyers paid in cash in November, a trend that NAR said “continues to add a layer of frustration to the supply and affordability headwinds aspiring first-time buyers are experiencing.”
Harlan Green © 2017
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