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New home sales numbers beat expectations

March 30, 2017

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The latest data on sales of new construction, single-family homes in February beat economists’ expectations, according to HousingWire. The data from the U.S. Census Bureau and the U.S. Department of Housing and Urban Development show new home sales increased 6.1 percent on a month-to-month basis and almost 13 percent on a year-over-year basis. With a seasonally adjusted figure of 592,000 total sales in February, analysts said this critical measurement is finally reaching levels in line with historical averages.

The news is certainly promising, but comes tempered with some mixed messages. While new home sales rose, HousingWire noted that their median sales price fell for the second month in a row. New construction sold in February for a median price of $296,200, down from $312,900 in January.

That price drop was itself part of a larger trend of home price behavior. The Federal Housing Finance Agency reported March 22 that their House Price Index, which tracks national market data, recorded no month-to-month increase in January. That marks only the second time since 2012 that home prices have not risen from one month to the next. Compared to January 2016, though, the most recent HPI reading was still 5.7 percent higher.

Census Bureau data also found that even with home prices stalling or falling slightly, there are signs of pent-up demand in the market. Inventory of new homes also fell in February, with an estimated 5.4 month supply of product available at the end of the month. This is a slight decrease from the 5.7 month new home inventory reading in January.

 

Spring shows promise for housing market

Reading the tea leaves on housing market data is a complicated endeavor. However, some of these signs lead analysts to believe there is still more demand for homes than can be met at current prices and inventory levels. This trend is somewhat of a surprise, given the fact that the Federal Reserve’s recent decision to continue increasing its key interest rate would normally put a damper on demand.

CNBC real estate columnist Rich Sharga offered a few theories for what could be going on as the U.S. housing market approaches its peak season.

“So far, there’s been no sign that the market is retreating,” Sharga wrote. “In fact, it seems more likely that the Fed’s actions could actually be good for the housing market.”

To support his claim, Sharga offered three points of elaboration:

  • Fence-sitting consumers are still moving to buy. This reflects the modern homebuyer’s market savvy, or perhaps the persuasive skill of today’s mortgage lenders, since there has been minimal negative reaction to the March 15 rate increase. With 30-year fixed-rate loans hovering around 4 percent and adjustable-rate mortgages around 3 percent, rates are staying very low compared to historical averages. This may be working to convince reluctant consumers to act now before rates rise even further.
  • Second, not only are rates still very low, Sharga explained, but the recent Fed rate hike has been priced into the mortgage market for several months now. The 25 basis point increase in the Federal Funds Rate “was well within the range that most industry analysts had expected,” Sharga wrote. As a result, mortgage rates were almost unchanged against recent weeks.
  • Finally, lending standards show signs of loosening. Sharga noted that even though rates are starting to notch higher, the risk-versus-reward calculus made by lenders still favors a more aggressive approach. For the last several years, lending standards have been very strict, with only the least risky borrowers getting the best mortgage deals. Now that loans can provide higher returns, and with less homeowners choosing to refinance their current mortgages, lenders may start moving to close more purchase deals.

This combination of better incentives for both homebuyers and mortgage lenders should make the 2017 real estate market a promising year for everyone.

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