CURRENT MORTGAGE RATES BOOST HOME SALES
With current mortgage rates the lowest they’ve been since mid-last year, U.S. home sales are thriving.
In September, despite a limited number of home for sale nationwide, sales of existing homes topped five million units on a seasonally-adjusted, annualized basis, marking the fourth consecutive month sales totaled more than one-half million units on an annualized basis.
Purchasing power is high and buyers are taking advantage. The typical “prime” home buyer can afford 10% more home as compared to the start of the year.
Low mortgage rates may not last, however, and neither will low prices. Demand for homes continues to outpace supply, and home sale prices continue to ratchet higher in many U.S. markets.
The good news for buyers is that low- and no-downpayment mortgages remain readily available; and a home buyer today can get approved for loan with credit scores of 580 or higher.
EXISTING HOME SALES PICK UP STEAM INTO 2015
The National Association of REALTORS® recently released its September 2014 Existing Home Sales report, which showed 5.17 million homes sold on a seasonally-adjusted, annualized basis. It’s a two percent increase from the month prior and a slight retreat from last September’s reading.
The September reading is the strongest of this year.
Demand for homes stayed strong through the summer months and into Fall, buoyed by extremely low mortgage rates and widely-available mortgage credit. Furthermore, more of today’s demand is coming from first-time and repeat buyer.
Just 14 percent of last month’s transaction can be attributed to real estate investors — a five-point decrease as compared to one year ago.
As the number of investors has dropped, the percentage of repeat home buyers has increase. A “repeat” buyer is a buyer who has owned a home within the last three years.
Many times, repeat buyers purchase homes which are more expensive than their current ones. This is among the reason why the typical home sale price has climbed — buyers are “moving up” toward higher-priced homes, and away from lower-priced ones.
Note how sales volume has changed at each NAR-tracked price range :
- Home sales between $0-100,000 : -7% since last year
- Home sales between $100,000-$250,000 : +4% since last year
- Home sales between $250,000-$500,000 : +29% since last year
- Home sales between $500,000-$750,000 : +6% since last year
- Home sales between $750,000-$1,000,000 : +6% since last year
- Home sales over $1,000,000 : +8% since last year
The September Existing Home Sales exceeded analyst expectations and also beat the projections of another NAR publication — the Pending Home Sales Index.
The Pending Home Sales Index measures the number of U.S. homes under contract, but not yet closed. 80% of homes under contract close within 60 days, so there exists a very high correlation between the Pending Home Sales Index and the monthly Existing Home Sales report.
The most recent Pending Home Sales Index data projected August home resales to tally near 5.13 million on an annualized basis. The actual Existing Home Sales reading exceeded its projection.
It helps that mortgage rates have been so low, for so long.
Mortgage borrowers using conventional loans now get quotes in the 3s regularly, with similarly low APRs. Today’s FHA and VA mortgage rates are even lower.
BUYING HOMES WITH LOW OR NO DOWNPAYMENT
Home sales are rising nationwide. Prices are rising as demand for home stays strong.
In September, according to the Existing Home Sales report, the national home supply was 5.3 months. This means that, at the current pace of sales, the entire inventory of U.S. homes for sale would “sell out” in less than half of a year.
Home supply of less than 6.0 months connotes a “Seller’s Market”; one in which home sellers have negotiation leverage over buyers and in which demand for homes is high.
Existing Home Supply has been in such bull-market territory since August 2012.
The good news is that today’s home buyers are able to finance their purchases via a growing number of mortgage programs, including low-downpayment loans, no downpayment loans, and loans for luxury homes.
Among the most popular options with today’s low-downpayment buyers is the FHA loan. FHA loans require just 3.5% down and offer flexible mortgage approval terms, including an allowance for average and below-average credit scores.
Another common low-downpayment option is the Fannie Mae 95% program. This government-backed loan tends to work well for buyers with above-average credit scores who are buying single-family, detached properties (i.e. not condos or town homes).
For buyers in rural and suburban areas, the USDA loan is an excellent no-downpayment option. The zero-down loan is backed by the U.S. Department of Agriculture and can provide below-market mortgage rates to applicants who use it.
Lastly, as the mortgage market has loosened, so have requirements for the fixed-rate and adjustable-rate jumbo mortgages.
Many banks now require just 10% down for a jumbo loan; and have lowered their minimum credit score requirement. This has helped spur the luxury housing market forward and is one reason why home sales over $750,000 continue to make gains.