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March 1st, 2012

Homebuyers: Concentrate on home prices not home sales

by Peter Miller

 

Sold sign resizedHas the housing recovery begun? Well, it’s certainly debatable.

According to a recent Reuters article (published in the New York Times), the latest numbers seem to suggest so.

“New single-family home sales fell in January, but an upward revision to December’s data and a drop in the supply of properties on the market added to growing signs of a budding recovery in the housing sector.”

The article also points out that new-home inventories are down, prices have begun to climb, though not by much, and consumer expectations have gone up.

Actually, the article is a gleeful reading of marginal changes.

Start with the title: “Sales of New Homes Dip, but Reports Suggest a Recovery Is Under Way.” Wouldn’t it be a lot more impressive if new-home sales actually rose? In fact, January new home sales fell 0.9 percent when compared with December. Not exactly a clear win.

When compared to last year, January new-home sales were up 3.5 percent. That said, does anyone remember last January? Not quite the balmy weather enjoyed by much of the country this year. This year’s weather has no doubt contributed greatly to completed home sales.

Affordability

Another boost to our budding recovery has been low mortgage rates. According to HSH.com, mortgage rates are down almost a full percent in the past year. Low rates increase affordability, allowing more borrowers to look for and close deals.

Homes are currently more affordable not only because mortgage rates are at historic lows, but also because home prices have dropped. According to the National Association of Home Builders, the median price for a new home was $225,800 in January 2011, while the median price for a new home in January 2012 was $217,100–a 9.1 percent drop.

With 10 percent down on a 30-year loan, a January 2011 buyer would borrow $203,220 at roughly 5.18 percent, resulting in a monthly payment (principal and interest) of $1,113. This year, the borrower would get a loan for $195,390 at 4.28 percent, with a fixed monthly payment (principal and interest) of $965. That’s a savings of $148 per month or $1,776 per year. A lower home price also means less property taxes and insurance costs.

What’s really happening?

To its credit, the NAHB actually has a more realistic description of what took place back in January: “New-Home Sales Virtually Flat in January.”

For most homebuyers, the big issue is not national sales but rather the matter of local prices. Now and perhaps for the next few months given low mortgage rates, low prices and cheap financing costs make new homes affordable and attractive in a way that should interest a growing number of purchasers.

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2 Responses to “Homebuyers: Concentrate on home prices not home sales”

  1. quick house sell Says: March 3rd, 2012 at 8:10 am

    Yes, low mortgage rates, low prices, and affordable prices of homes would likely increase the rate of purchaser if that’s the case.

  2. New homes Scotland Says: March 6th, 2012 at 11:31 am

    Affordability is key. Buyers, indeed all consumers, are more skeptical and more wary of getting themselves into debt. Low interests are helping, but also there is still low confidence in the market generally. Buyers just dont’ want to get themselves into trouble and are also looking for the best deals.

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About the HSH Blog

HSH.com's daily blog focuses on the latest developments in the mortgage and housing markets. Our mission is to relate how changes in mortgage rates and housing policy, as well as the latest financial news, impacts consumers, homebuyers and industry insiders alike. Our 30-plus years of experience in the mortgage industry gives us an edge as we break down the latest changes in an ever-changing market.

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Tim Manni

Tim Manni is the Managing Editor of HSH.com and the author of their daily blog, which concentrates on the latest developments in the mortgage and housing markets.

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