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Value-Driven Buying : Home Shoppers Find Mortgage Rates, Builder Confidence Low

Posted February 19, 2014

Value-Driven Buying : Home Shoppers Find Mortgage Rates, Builder Confidence Low

Single-Family Housing Starts (2007-2014)

Single-Family Housing Starts (2007-2014)

The housing market has lost some momentum.

In January, Single-Family Housing Starts fell below 600,000 for the first time in four months, dropping to 573,000 units on a seasonally-adjusted annualized basis. It's a sixteen percent decrease from the month prior, marking the largest month-over-month decline in nearly 3 years.

Cold weather may have been a factor in January's Housing Start slowdown, but it was not the only factor. Seasonal and broad-based changes may be underway in the market for U.S. housing.

Building Permits fell just one percent in January.

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Housing Starts : 2% Annual Decrease

According to the U.S. Department of Commerce, single-family housing starts plunged by one-hundred-eight-thousand units in January 2014 -- a 16 percent drop from the month prior, with a ±12.1% margin of error.

"Housing starts” are defined as homes on which construction has started.

January's seasonally-adjusted, annualized reading is also the lowest published value since September 2012 -- a span of 18 months. The January tally was below each of the 3-, 6- and 12-month Housing Start rolling averages.

The news should not have been a surprise.

Earlier this week, a release from the National Association of Homebuilders (NAHB) foreshadowed the weak figures. The group's monthly Housing Market Index (HMI), which measures homebuilder confidence, dropped ten points in February, to 46.

Scores below 50 suggest "poor" conditions for the single-family, new housing market.

February's 10-point drop is the largest monthly drop in the survey's 28-year history and this is the first time that the HMI fell below 50 since May 2013.

Previously, confidence had been buoyed by high sales volume and heavy buyer foot traffic. In January and February, both metrics crashed. Builders have adjusted downward their expectations for 2014.

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Low Mortgage Rates Not Boosting Starts

Fading mortgage rates appear to be having little impact on today's buyers.

As compared to the start of the year, today’s home buyers are benefitting from an increase in purchasing power and home affordability. Mortgage rates are down by more than one-quarter percentage point over the last six weeks.

Assuming a 20 percent downpayment on a conforming mortgage, buyers can spend four percent more on a home and make the same monthly payment.

  • December 2013 : A $1,750 mortgage payment afforded a purchase price of $430,000
  • February 2013 : A $1,750 mortgage payment afforded a purchase price of $446,000

And, it's not just mortgage rates which are getting better. Mortgage guidelines are easing, too. Lenders are making it simpler to qualify for U.S. mortgages.

One such example is the loosening of a common investor overlay on the FHA mortgage program, which now allows borrowers with FICO scores of 600 to use the government-backed program.

An "investor overlay" is an additional qualification hurdle put in place by a lender but not required by any specific federal agency.

As a real-life example, some banks which offer the 5-10 Properties program for investors with more than four properties financed require a loan-to-value of fifty percent or lower -- even though the Federal Home Finance Agency specifically says LTVs of 75% are acceptable for a purchase transaction.

This is an investor overlay.

Will Housing Starts Rebound In Spring?

Today's home buyers may be catching a break. With Housing Starts lower, homebuilder confidence down, and continued snow cover nationwide, there may be some good sales to be found if you know where to look. The deals may not last long, however. When spring arrives and demand picks up, prices may begin rising.

See how today's low mortgage rates can fit your housing budget. Rates are available online with no cost, no obligation, and no social security number is required to get started.

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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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