Posted February 28, 2014

Opportunity For New Home Buyers : Falling Mortgage Rates Help Keep New Homes Affordable

New Home Sales unexpectedly rise to a 5-year high in January; New Home Supply remains in bull-market territory

Sales of newly-built homes defied analyst predictions, surging to a 5-year high in January.

Also unexpectedly, growth was largest in the home price range typically occupied by  "first-time buyers" -- the range from one-hundred-fifty to three-hundred thousand dollars. After weakness in last month's home resales nationwide, and aided by today's low mortgage rates, a strong New Home Sales report surprised.

For buyers of new construction, prices will likely rise through the rest of 2014. 

Click for today's live mortgage rates.

Just 184,000 New Homes For Sale 

According to the U.S. Census Bureau, 468,000 new homes were sold in January 2014 on a seasonally-adjusted, annualized basis. A "new home" is a home which has not been previously occupied; which can be considered new construction.

The tally marks a 10 percent rise from the month prior and is the largest New Home Sales reading in seven months. The results, however, may be affected by a sizable margin of error.

The Census Bureau says there's just ninety percent confidence in its most recent report.

With a margin of error of ±17.9%, the January New Home Sales tally could have been as high as 552,000 or as low as 397,000. That's a wide range and one which leaves little room for drawing a housing market conclusion -- especially with respect to weaker-than-expected numbers coming from the National Association of REALTORS®.

The most recent Existing Home Sales report showed seasonally-adjusted, annualized sales down to their lowest since mid-2012.

Furthermore, homebuilder confidence slipped below 50 in February for the first time in nine months. This, too, suggests that the final New Home Sales tally will be less than what's been first reported.

Or, maybe the reading's accurate after all. Fundamentals in the new construction market support home price growth through the rest of 2014 and into 2015. 

Click for today's purchase mortgage rates.

"Bull Market" New Home Supply : 4.9 Months

Last decade, U.S. homebuilders were overbuilt when the housing market turned worse. It contributed to large losses and expensive write-downs. This decade, builders have taken care more to avoid such outcomes.

At the close of January, the supply of new homes for sale remained tight. There were just 184,000 new single-family homes for sale nationwide, an average of 3,680 per state.

This marks a slight uptick of one thousand units from the month prior, but the subsequent time required to exhaust that supply at the current national sale pace dropped by a half-month. 

This tells us that more U.S. buyers are in competition for approximately the same number of homes. At the current sales pace, all available homes would "sell out" in 4.7 months -- the quickest pace in 6 months.

For buyers of new construction, the figure is significant.

Housing analysts believe home supply of less than 6.0 months favor sellers over buyers. An imbalance toward sellers tends to move home prices higher and, in with respect to new construction, can restrict the types and costs of upgrades offered by a builder.

Thankfully, mortgage rates remain low.

Freddie Mac reports the 30-year fixed rate mortgage below 4.5 percent for the seventh straight week and the availability of low- and no-money-down mortgages remains high.

FHA mortgages, which require just 3.5% down, accounted for 1-in-5 mortgages made in January and demand has remained strong into spring. It helps that lenders are relaxing requirements, too.

Major lenders have reduced by 40 points the minimum FICO required to get approved for an FHA loan. This may be among the reasons why sales jumped for new homes selling near $150,000.

First-time buyers have fewer obstacles to homeownership.

Mortgage Rates For New Construction

For buyers of new construction, the prices of new homes are rising. Builders may be less confident about their future sales prospects, but that's not stopped them raising their prices.  Today's new construction buyers may find better "deals" in housing in March as compared to later this year.

Know your options as buyer. Get today's live mortgage rates and see how much you can afford. Consider a pre-approval, too -- it can help you strengthen an offer and it's available at no cost and with no obligation.

Click to get started with a rate quote.

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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