Current Mortgage Rates Stoke U.S. Home Sales
With current mortgage rates hovering near 4 percent, U.S. home sales remain strong.
In May, despite a scarce supply of homes for sale, existing home sales tallied 5.35 million — a 22-month best.
Also, purchasing power is soaring. the typical “prime” buyer can afford 10% more home as compared one year ago. This means that a home buyer whose maximum purchase price was $400,000 in 2014 can now purchase at $440,000 for the same monthly payment.
Mortgage interest rates been at or below four percent since November of last year.
Meanwhile, while mortgage rates drop, it’s becoming harder to find a “good deal” in housing. Demand for homes continues to outpace supply and values are ratcheting higher in many U.S. markets.
Thankfully, low- and no-downpayment mortgages remain readily available.
Fannie Mae and Freddie Mac have re-launched a program allowing for just 3% down; and the Federal Housing Administration insures high-LTV loans for buyers with credit scores of at least 580.
Click to see today’s rates.
Existing Home Supply Still Tight In 2015
The National Association of REALTORS® recently released its May 2015 Existing Home Sales report, which showed 5.35 million homes sold on a seasonally-adjusted, annualized basis. The reading marks a five percent increase from the month prior, and a 9 percent increase from one year ago.
Home supplies remain constricted nationwide.
Buoyed by low mortgage rates and widely-available credit, home buyers are purchasing properties faster than sellers can list them. In May, 45% of homes sold in 30 days or fewer.
Today’s demand for homes is coming from first-time and repeat buyers. Just 14 percent of last month’s transaction can be attributed to real estate investors — a two-point decrease as compared to one year ago whereas first-time buyers now account for 32 percent of all homes sold.
The percentage of repeat home buyers is increasing, too. 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.
Repeat buyers are among the reasons why the typical U.S. home sale price has climbed — today’s 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 — especially for “jumbo” homes.
- Home sales between $0-100,000 : -14% since last year
- Home sales between $100,000-$250,000 : +4% since last year
- Home sales between $250,000-$500,000 : +17% since last year
- Home sales between $500,000-$750,000 : +15% since last year
- Home sales between $750,000-$1,000,000 : +13% since last year
- Home sales over $1,000,000 : +8% since last year
It should be noted that the May Existing Home Sales report came in in-line with projections based on a different 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 May home resales to near 5.33 million on an annualized basis. The actual home sales tally was right on target.
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Buying Homes With Low Or No Downpayment
For today’s active buyers, there are fewer homes for sale.
According to the Existing Home Sales report, the national home supply sits at just 5.2 months. This means that, at the current pace of sales, the entire stock of 2.29 million U.S. homes for sale would be “sold” in less than 6 months.
This is a meaningful data point because home supply of 6 months or less 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 conventional 97% 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).
Only 3% down is required and buyers can receive cash downpayment gifts.
For buyers in rural and suburban areas, the USDA loan is an excellent no-downpayment option.
This 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.