Posted July 15, 2013Tweet
There's no doubting the housing market's recovery. Home prices are rising nationwide, home supplies are dropping, and competition for "right-priced" homes is hot. Ask any active home buyer and they'll tell you -- it's tough out there today.
As the U.S. housing market strengthens and solidifies through 2013, the 2014 market is gearing up to be among the best in a generation -- especially at price points considered to be "luxury".
The housing market of 2010-2012 was characterized by sales at price points under $250,000. The market of 2013 is characterized by sales at $500,000 and higher.
Each month, the National Association of REALTORS® releases its Existing Home Sales report, a detailed look at home resales nationwide and their overall composition.
The Existing Home Sales report includes basic data such as total homes sold in the month prior; and, the size of the existing home inventory nationwide. It also reports on more granular data such as percentage of buyers paying all-cash for a home; and, percentage of buyers buying a home in some form of short sale of foreclosure.
5.18 million homes were sold in May 2013 on a seasonally-adjusted, annualized basis, according to the NAR report -- a 13 percent increase from May 2012 and the highest annualized figure since November 2009, a month fueled by the expiration of that year's federal home buyer tax credit program.
Despite a 10% drop in listed home inventory, home sales continue to soar. Buyers are buying more quickly than sellers can list. The average time to sell a home is down to just 39 days for non-distressed homes. One year ago, that figure was seventy-two days.
Demand is outweighing supply. It's no wonder home prices are rising.
Nearly 5 years ago, Congress launched its first housing market stimulus plan, aimed at first-time buyers. In offering a tax credit to people who had not owned a home in the prior three years, the government hoped to spur home sales and slow a rising foreclosure tide as investors went bust.
Around the same time, Fannie Mae launched its 5-10 Properties program, a mortgage program meant to help "bona fide investors" get access to mortgages. The goal of the 5-10 Properties program was the same as with the tax credits -- spur home sales and provide a floor to the national housing market.
The government left its home buyer tax credit program in place until April 2010 and home sales remained brisk while the program was active. Then, predictably, when the tax credits stopped, home sales slumped, falling to as low as three million sales on an annualized basis.
Now, in May 2013, the Existing Home Sales data shows 5-million-plus homes sold for the first time since November 2009 -- a stretch of 42 months. The tax credit programs were a real success for U.S. housing and the broader U.S. economy.
Today's gains in housing are a direct result of these policies.
The federal home buyer tax credit ended 3 years ago. However, it continues to influence the housing market nationwide.
Remember that, prior to the federal tax credit programs, millions of U.S. homeowners were, literally, unable to move even if they wanted to. Mortgage lenders had toughened up on applicants -- specifically those with a "trailing home". For many would-be sellers, unless they could sell their current home, they were unable to buy a new one.
Homeowners were trapped where they lived. Furthermore, home prices dropped with each passing month, which decreased the equity each existing homeowner held, which made selling an economically unviable option. It was a bad situation for homeowners, and for banks.
And then the tax credit program passed.
Suddenly, the market was teeming with new buyers eager to take advantage of falling home prices and a generous federal tax credit. As these buyers bought, they literally "freed" the home seller to go purchase its next home. The federal tax credits sparked a chain reaction -- one which continues to drive home sales today.
Move-up buyers can now "move up". As compared to last year, the mix of home sales has moved toward higher-priced homes as the tax credits of last decade continue to work through the system.
Plus, in May, move-up buyers accounted for more 54% of all home buyers -- more than double the percentage from three years ago and the highest proportion in at least a decade.
Today's home buyers are also helped by the widespread availability of low- and no-downpayment mortgage programs.
The Fannie Mae 97 Percent program; the FHA 3.5% downpayment program; and the VA home loan which allows for 100% financing remain in demand -- especially among homeowners whose former homes lost equity and are underwater.
Each programs has its benefits.
The Fannie Mae Conventional 97 program, for example, allows gift funds for a downpayment which means that the borrower does not need to have the three percent downpayment in his bank account. The program, however, for all of its "looseness", is limited to the standard conforming loan limit of $417,000.
For loan sizes greater than $417,000, the FHA and VA allow financing of up to $729,750 in certain high-cost areas which includes San Diego and most of California; Potomac and Bethesda, Maryland; and most of Northern Virginia, including Loudoun County and Alexandria.
Jumbo loans are easing, too. Today's jumbo home buyer can now use 10% downpayment programs for loans of up to $750,000. This wasn't possible last year, and it's helping to fuel gain in the luxury housing market.
For today's home buyers, the housing market appears to be getting more expensive. The tax policies of last decade were meant to stimulate housing, and they have. By 2014, home values may be higher than what they are today. Mortgage rates may be higher, too.
See how much home you can afford at today's prices, and at today's rates. Build your budget today.
The information contained on The Mortgage Reports website is for informational purposes only and is not an advertisement for products offered by Full Beaker. The views and opinions expressed herein are those of the author and do not reflect the policy or position of Full Beaker, its officers, parent, or affiliates.
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2014 Conforming & FHA Loan Limits
Mortgage loan limits for every U.S. county,
as published by Fannie Mae & Freddie Mac, and the FHA.