Today’s Home Buyers : Lured Back By Low Mortgage Rates And Low Home Prices

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The housing market is emerging from its long slump. Lured by low mortgage rates and low home prices, buyers are back.

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33% Contract Failure Rate Can't Slow Sales Pace

According to the Chicago-based National Association of REALTORS®, Existing Home Sales rose to a seasonally-adjusted, annualized 4.42 million units in November --  a 4 percent increase over the month prior.

An "existing home" is a home that has been previously occupied.

The increase is a big deal, but the bigger story in the Existing Home Sales report is what's happening behind the headline figures. A deeper look at November's numbers provides new evidence that the housing market has already bounced off its bottom, and that a housing market recovery has already begun.

Home Prices Improve At All Price Points -- First-Time Buyer to Jumbo Home Buyer

First, the number of home resales made reached a 10-month high, accounting for revisions to NAR's Existing Home Sales data. All price points are experiencing gains with the largest jumps occurring in the $0 - $100,000 range, and the $100,000-$250,000 range -- price points popular with first-time home buyers and real estate investors.

Home sales also showed improvement in the $750,000-$1,000,000 range, and the $1,000,000-plus range, posting modest gains over last year's figures.

This suggest that the effects of the new, lower conforming loan limits in high-cost areas such as Loudoun County, Virginia and San Mateo, California, may be muted. It also speaks to the incredibly low jumbo mortgage rates available to today's home buyer.

National Housing Stock Falls To 4-Year Low

The second data point of interest is that November's sales volume increased even as the national housing stock dropped to 2.58 million. This is an 18% reduction from November 2010 and represents the fewest number of homes for sale since February 2007.

At the current sales pace, the complete national inventory would be sold in 7.0 months.

1 in 3 Sales Contracts Failed 

And, third, NAR reports that 33% of all homes under contract in November "failed" for some reason; they never closed at all.

Contract failures can occur for a multitude of reasons. Maybe the buyer's mortgage was denied in underwriting; maybe the home inspection uncovered deal-breaker issues; maybe the home appraised for less than its purchase price. Who knows.

But, despite one-third of all contracts failing and  the smallest housing stock in 4 years, Existing Home Sales volume still reached a 10-month high.

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What Does Today's Buyer Look Like? 

As supported by the date above, the number of first-time buyers and real estate investors increased in November.

Some buyers used low-downpayment program such as the FHA's 3.5% down program; the USDA's 100% financing program; or the VA's 100% mortgage program.

Real estate investors with more than 4 properties financed used the 5-10 Properties Program, taking advantage of low mortgage rates to get better cash flow.

Here's how buyers of home resales broke down "by type" in November.

• First-time buyers : 35% of home resales, up from 34% in October 2011
• Repeat buyers : 46% of home resales, down from 48% in October 2011
• Investor buyers : 19% of home resales, up from 18% in October 2011

Given high demand for home from buyers and shrinking home supplies from sellers, many housing markets-- from San Diego, California to Tyson's Corner, Virginia and everywhere in between -- will experience higher home prices through 2012.

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What Are Mortgage Rates For A Purchase?

When you're buying a home, you're setting a budget for yourself. Part of setting that budget is knowing your mortgage rate and payment.

When home prices rise, low mortgage rates help keep them affordable. Get started with a rate quote to know your budget.

Click here to get a free rate quote.