New Construction Homes Still “Cheap”
Newly-built homes continue to sell quickly.
According to the Census Bureau, January New Home Sales dropped from the month prior, but new home supply remain firmly in Bull Market territory.
A favorable mortgage environment is helping.
Current mortgage rates continue to drop, and mortgage lenders are making it simpler for first-time home buyers to get mortgage-approved for a home loan.
Fannie Mae recently added the 3% down HomeReady™ mortgage program to the full complement of low- and no-downpayment loans available to today’s buyers; and purchase mortgage applications are getting approved at the highest rate since the start of the decade.
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 Hit 494,000 Sales, Annualized
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 January 2016, HUD reports 494,000 new homes sold on a seasonally-adjusted, annualized basis, marking a five percent decrease from one year ago.
Builders, however, are unfazed. Builders expect another strong year this year.
Earlier this month, the National Association of Homebuilders (NAHB) released its Housing Market Index (HMI), a monthly homebuilder confidence survey.
The most recent Housing Market Index shows homebuilder confidence near its highest point in a decade, with home builders projecting new home sales for 2016 to be near multi-year bests.
Demand for new homes has been strong, too, as evidenced by the high number of buyers requesting tours of model units.
If you’re hoping to buy new construction housing, there aren’t many homes to left to purchase. At the end of January, there were just 238,000 new homes for sale nationwide, a supply of 5.8 months.
Home Supply Remains In “Bull Market” Territory
New home sales closed the year strong with buyers snapping up homes at every available price point — faster than builders can build them, even.
At the current pace of sales, the complete stock of new homes for sale would be sold in 5.8 months. This means that all newly-built homes for sale would be “sold out” by July.
It also connotes a seller’s market for housing because home supply of less than six months typically favors sellers over buyers in home negotiations.
Today’s new home buyers, therefore, have little leverage over builders and may be unlikely to receive purchase incentives in 2016, including free upgrades and/or price breaks.
New Home Supply has been south of six months through 50 of the last 51 months. It’s no surprise, then, that home prices have moved markedly higher during that time.
Nationwide, home values are up more than 30% since 2012.
Buy A New Home, Inexpensively
Home prices are rising but, thankfully, mortgage rates remain cheap.
According to Freddie Mac’s weekly Primary Mortgage Market Survey, the average conventional 30-year mortgage rate is currently 3.62% for prime borrowers; with rates for VA loans, FHA loans and USDA loans even lower.
Low rates help to make homes affordable. Low- and no-downpayment mortgages make them easier to purchase.
FHA mortgages, for example, allow a downpayment of just 3.5 percent and require a credit score of 580 or better to get qualified.
Then, there is the HomeReady™ mortgage, which is a 3-percent downpayment program available via Fannie Mae. HomeReady™ is valid for loan sizes up to $417,000 and can be used by multi-generation households with non-documented rental income; and by home buyers in lower-income census tracts.
For buyers with military experience, the VA mortgage can be an attractive option.
VA loans allow for 100% financing and never require mortgage insurance. VA mortgage rates also tend to be the lowest of all commonly-available mortgage rates, 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.