Posted January 17, 2013

Surging Builder Confidence Suggests Fewer “Deals” For Buyers In 2013

Housing Market Index (HMI) shows builder confidence at a 6-year high

Housing Market Index (HMI) shows builder confidence at a 6-year high

With home values on a slow, steady rise since October 2011, the market's frontline soldiers -- home builders -- have taken notice. Amid rising prices and a tightening supply, the nation's homebuilders are showing more confidence in the U.S. housing market than at any time in the last 6 years.

For buyers of new construction, the "best deals" in housing may be vanishing quickly.

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Homebuilder Confidence At 81-Month High

The National Association of Homebuilders reports its monthly Housing Market Index (HMI) at 47 in January 2013, unchanged from the month prior and the highest reading since June 2006.

The Housing Market Index captures current market sentiment among the nation's homebuilders. For this reason, it is sometimes called the "Homebuilder Confidence Survey".

Readings above 50 suggest favorable conditions for builders and readings below 50 suggest unfavorable conditions for builders. The HMI has been south of 50 since early-2006. However, a rapid run-up through the latest housing cycle has witnessed the HMI tripling.

Low home prices, shrinking home inventory and a rush of prospective buyers have fueled the gains. Builders project sales over the next 6 months to return to pre-recession levels. Buyer foot traffic is at a 7-year high.

Home prices have already started to climb.

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Low-Downpayment Mortgages For New Construction

For today's new construction buyer, the good news is that prices remain relatively low and so do mortgage rates. According to Freddie Mac's weekly mortgage rate survey, the average 30-year fixed rate mortgage is firmly under 3.50% for borrowers paying closings costs and up to one discount point.

Not all home buyers will seek financing Freddie Mac-backed financing, though -- especially those wanting to put down less than 20 percent at the time of closing.

For buyers wanting to make as small of a downpayment as possible, loans via the FHA, USDA and VA may be better suited. Downpayment requirements are less than 20 percent via each of them.

  • FHA mortgage: Minimum downpayment requirement of 3.5%
  • USDA mortgage : No downpayment required at all
  • VA mortgage : No downpayment required at all

Another advantage these loans types have over comparable Freddie Mac- and Fannie Mae-backed loans is that, because of today's mortgage market conditions, mortgage rates are lower than for a conventional loan. FHA mortgage rates are roughly 0.50 percentage points below comparable conventional loans with zero points.

Furthermore, each of the above loan types offer special "perks".

As one example, FHA and VA mortgages allow for larger loan sizes than their conforming mortgage counterparts. In Montgomery County, Maryland, the FHA jumbo loan limit is $729,750 while the VA permits loan sizes up to $843,750. By contrast, a loan via Fannie Mae or Freddie Mac would be capped at $625,500.

As another example, the mortgage insurance requirements of a USDA loan are minuscule as compared the private mortgage insurance requirement for conforming mortgage financing; and the VA charges no mortgage insurance whatsoever.

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Get Today's Purchase Money Mortgage Rates

For today's home buyers and buyers of new construction, the housing market appears well off its bottom. Fewer foreclosures have helped to trim the available U.S. home supply and rising rents have contributed to a larger pool of buyers. Predictably, home values are up from one year ago.

Home prices are expected to rise through 2013, too, so if you're looking at new construction, your best time to buy may be today.

Get started by seeing how much home you can afford. Get today's mortgage rate and set yourself a budget.

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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.