Home builders know their business well, it seems. Over the last 4 years, builders have predicted with high accuracy the number of home sales they’ll make 6 months into the future. It’s among the reasons why today’s home buyers should rising homebuilder confidence levels.
Today’s home builders feel as good about their sales prospects as at any time in the last 5 years. Buyers should expect rising home prices through the end of 2012 and into early-2013.
Homebuilder Expect Most Sales Since April 2007
Earlier this week, the National Association of Homebuilders released its Housing Market Index for August 2012.
More commonly called as the “Homebuilder Confidence Survey”, the HMI is a composite survey, measuring builder sentiment on three fronts — current home sales, current buyer foot traffic, and projected home sales for the next six months.
It’s this last aspect to which we should pay attention.
As reported by this month’s HMI, home builder homes sale expectations through Q4 2012 and Q1 2013 are at their highest points since early-2007. Low mortgage rates vis-à-vis rising rents have changed the Rent vs Buy relationship in a host of U.S. cities. For many would-be buyers, it’s now less expensive to own a home than to rent one.
The monthly homebuilder survey captures this zeitgeist. Buyer foot traffic is soaring, as are home sales are. New Home Sales volume are currently at a 2-year high on a seasonally-adjusted, annualized basis.
Buyers For Low-Downpayment Mortgages
There are two main drivers for today’s surging home sales. The first is low mortgage rates.
Since January 2012, the average 30-year fixed rate mortgage rate has held below 4 percent nationwide. Even in “high-cost” areas such as Marin County, California and Brooklyn, New York where jumbo-conforming loans are available up to $625,500 and FHA mortgages are available up to $729,750, mortgage rates have remained low.
Low mortgage rates make for low mortgage payments and, as compared to 12 months ago, today’s mortgage payments are a steal. Look how far mortgage payments have dropped in a year.
Assuming a $400,000 loan size :
- August 2011 : $2,001 monthly mortgage payment
- August 2012 : $1,816 monthly mortgage payment
This year’s home buyers are saving 9.3% with every mortgage payment made. It’s no wonder home buyers are out in full force.
Another big factor in today’s rising home sales is the availability of low-downpayment mortgages. Home buyers don’t need a 20% downpayment to get into homes today. With a good credit score and verifiable income, at maximum, a 3.5% downpayment is needed. At minimum, no downpayment is needed at all.
The FHA makes a low-downpayment, 3.5% down program available in all 50 states. Approval standards are loose and geared toward first-time buyers (although plenty of move-up buyers go FHA, too). The FHA will lend up to $729,750, depending on where you live.
The VA will lend up to that amount, too, but where the VA differs from the FHA is that the VA does not require a downpayment on a purchase. If you’re a serviceperson, active or retired, you are eligible for the VA loan program. The USDA loan program is zero-percent down, too.
These products — the FHA mortgage, the VA loan, and the USDA loan — are helping today’s home buyers get out of rentals and into new homes. Builders are a beneficiary and, with rents expected to remain high, builders expect higher home sales ahead.