By Dan Green, Mortgage Market Expert
Today’s Mortgage Rates Aid Active Buyers
New Home Sales turned in a strong December, reaching a high for the year and posting the highest number of annualized sales in more than six years.
Strong buyer demand has pushed home prices higher this year. The number of homes for sale remains scarce.
The state of today’s mortgage rates are helping to stoke demand.
The conventional 30-year fixed rate mortgage rate now averages 3.66% nationwide and is approaching the lowest point since May 2013. Meanwhile, FHA mortgage rates and VA mortgages are pricing even lower.
VA mortgage interest rates are this year’s lowest by a lot.
Furthermore, lenders are making it easier to qualify for a loan. Guidelines are softening and, according to mortgage-software provider Ellie Mae, mortgage lenders now approve more than two-thirds of all purchase mortgage applications, the highest rate since such data has been tracked.
It’s an excellent time to be shopping for a home. The best deals you find in housing may be the deals you find today.
New Home Sales: 481k Tally Is Best Since 2008
Each month, in conjunction with the U.S. Census Bureau, the U.S. Department of Housing & Urban Development (HUD) releases its New Home Sales report.
A “new home” is a home which has not been previously occupied; one which can be considered new construction.
For December 2014, HUD reports 481,000 new homes sold on a seasonally-adjusted, annualized basis. The tally is the largest New Home Sales reading since July 2008 — just three months after last decade’s housing market peak.
Some of these figures were foreshadowed by the Housing Market Index (HMI), which is a homebuilder confidence survey published monthly by the National Association of Homebuilders.
The most recent Housing Market Index puts homebuilder confidence within two points of its highest point since December 2005. Builder sentiment is buoyed by high annual sales volume plus consistent, strong buyer foot traffic.
Home prices continue to move higher, too.
Home Supply Goes Deep Into Bull Market
The number of new homes sold on a seasonally-adjusted, annualized basis climbed to near a six-year best last month. Buyers snapped up homes at all price points, and demand has remained strong.
Even as builders build more homes, the pace at which homes sell is hastening.
At the end of December, HUD reports 219,000 homes for sale nationwide. This is a 17 percent jump from one year ago. Yet, because demand for new homes is so strong currently, the “supply” of homes remains tight.
At the current pace of sales, the national stock of newly-built homes would be sold out in just 5.5 months. Home supply of less than six months typically favors sellers over buyers in home negotiations; and is considered a “bull market” trait.
Today’s new home buyers have little leverage over builders and may be unlikely to receive purchase incentives including free upgrades and/or price breaks.
New Home Supply has been below six months in 37 of the last 38 months. New home prices have moved higher during that time, measurably.
New Homes Cheaply: Mortgage Rates Hit 3.66%
The good for today’s home buyers is that mortgage rates are currently cheap.
According to Freddie Mac’s weekly Primary Mortgage Market Survey, the average conventional 30-year mortgage rate sits at 3.66% for prime borrowers, which is the near the lowest point for interest rates since May 2013 — a span of 21 months.
Conventional mortgage rates are down 87 basis points (0.87%) from January of last year; and mortgage rates for VA loans, FHA loans and USDA loans are even lower.
Low mortgage rates have helped to keep homes affordable for today’s active buyers. An abundance of low- and no-downpayment mortgages have helped as well.
FHA mortgages, for example, allow downpayments of 3.5 percent on a home in all 50 states and require a FICO score of 580 or better. FHA loans accounted for seventeen percent of all closed loans in December.
There is also the Conventional 97, which is a 3-percent downpayment program available via Fannie Mae and Freddie Mac. The program is valid for loan sizes up to $417,000 and FICO scores of 620 or higher.
For buyers with military experience, the VA home loan can be an attractive option.
VA loans allow for 100% financing and never require mortgage insurance. VA mortgage rates are also the lowest of all commonly-available mortgage programs, based on Ellie Mae data.
The USDA Section 502 loan is another no-downpayment mortgage option.
Commonly called the “Rural Housing Loan”, USDA loans provide 100% financing to qualified borrowers in low-density neighborhoods. This can include rural and suburban neighborhoods.