Home builders have a handle on their business, it appears. Over the last 5 years, builders have predicted with an astoundingly high accuracy the number of home sales they'll make 6 months into the future. It's among the reasons why this month's Housing Market Index is worth heeding.
Today's home builders feel as good about their sales prospects as at any time since 2007. Active U.S. home buyers should expect new construction prices to rise, therefore, through the end of 2013 and likely into 2014.
Builders are building into recovery.
Earlier this week, the National Association of Homebuilders released its Housing Market Index for May 2013.
More commonly called as the "Homebuilder Confidence Survey", the HMI is a composite survey, measuring builder sentiment on three fronts -- current home sales, current buyer foot traffic, and projected home sales for the next six months.
It's this last aspect to which we should pay attention.
As reported by this month's HMI, home builder homes sale expectations through Q3 2013 and Q4 2013 are at their highest point in 24 quarters. The combination of lifetime-low mortgage rates and rising U.S. rents have changed the Rent vs Buy relationship in many U.S. cities.
For many would-be buyers, it's now less expensive to own a home than to rent one.
The monthly homebuilder survey captures this zeitgeist. Buyer foot traffic is soaring as are home sales, which are now at a 3-year high on a seasonally-adjusted, annualized basis.
There are two main drivers for today's surging home sales. The first is low mortgage rates.
Since January 2012, the average 30-year fixed rate mortgage rate has held below 4 percent nationwide. Even in "high-cost" areas such as Marin County, California and Brooklyn, New York where jumbo-conforming loans are available up to $625,500 and FHA mortgages are available up to $729,750, mortgage rates have remained low.
Low mortgage rates make for low mortgage payments and, as compared to 24 months ago, today's mortgage payments are a steal. Look how far mortgage payments have dropped in two years.
Assuming a $400,000 loan size :
This year's buyers are saving 14% on mortgage payments. It's no wonder that home sales are brisk.
Another big factor in today's rising home sales is the availability of low-downpayment mortgages. In the improving economy, home buyers don't need a 20% downpayment to get into homes today. With even a "fair" credit score and verifiable income, at maximum, a 3.5% downpayment is needed.
At minimum, no downpayment is needed at all.
The FHA makes a low-downpayment, 3.5% down program available in all 50 states. Approval standards are loose and geared toward first-time buyers (although plenty of move-up buyers go FHA, too). The FHA will lend up to $729,750, depending on where you live.
The VA will lend up to that amount, too, but where the VA differs from the FHA is that the VA does not require a downpayment on a purchase. If you're a serviceperson, active or retired, you are eligible for the VA loan program. The USDA loan program is zero-percent down, too.
These products -- the FHA mortgage, the VA loan, and the USDA loan -- are helping today's home buyers get out of rentals and into new homes. Builders are a beneficiary and, with rents expected to remain high, builders expect higher home sales ahead.
Today's home builders have front-row seats to growth in the housing market, and they're liking what they see. Homebuilder confidence is up for 7 of the last 8 months, and has moved to more than double the levels of one year ago.
Builders project rising sales over the next six months. It's highly likely that they'll be right. If you're buying new construction, therefore, consider moving up your time frame. As home sales swell, builders may be less likely to negotiate on their price or product. Your best "deals" may be the ones you find 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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2015 Conforming, FHA, & VA Loan Limits
Mortgage loan limits for every U.S. county, as published by Fannie Mae & Freddie Mac, the Federal Housing Administration (FHA), and the Department of Veterans Affairs (VA)