Wednesday, September 19, 2012

Homes Rising?

Another month, another new high-water mark for the Housing Market Index (HMI). The HMI is a measure of homebuilder confidence nationwide and its rapidly rising readings suggests that competition for newly-built homes will be tight into 2013, leading new home prices higher nationwide.
If you're planning to buy new construction, your best "deals" may be the ones you find between today and the New Year.

Builder Optimism Rises To 6-Year High 

Each month, the National Association of Homebuilders publishes its Housing Market Index, a composite metric meant to gauge how homebuilders feel for the single-family new construction housing market. The NAHB survey is basic -- just 3 questions -- and requires simple, one-word answers.
The survey asks the nation's builders to rate the following on a scale of  "Good", "Fair" or "Poor"; or, "High", "Average", "Low" :
  • How are market conditions for the sale of newly-built homes today
  • How are market conditions for the sale of newly-built homes six months from today
  • How is your prospective new home buyer foot traffic
The NAHB collects its surveys, weights its answers, then publishes a "confidence figure" on a scale of 1-100. Readings over 50 are meant to suggest favorable market conditions for builders overall; readings under 50 suggest unfavorable conditions overall.
For September 2012, the Housing Market Index reads 40, it's highest reading since June 2006.

More Buyers, More Competition For Newly-Built Homes

This month's HMI showed an increase across all three categories as compared to August, with builders specifically noting that buyer foot traffic rating moved to its highest point in more than 6 years.
This is noteworthy because as the number of potential new home buyers grows, so does the competition for new homes for sale. This is basic economics and holds as true in urban centers such as Charlotte, North Carolina where new construction is booming as for smaller housing markets including Roseville, California.
Low mortgage rates have been a driver of new home sales nationwide. As mortgage rates fall, the Rent vs Buy mathematics have changed. The relative cost of homeownership has dropped such that owning a home can be cheaper than renting -- even after accounting for real estate tax and property maintenance.
The availability of low- and no-downpayment mortgages have helped, too.
The FHA's 3.5% downpayment program continues to be a popular choice among today's home buyers, as do the 100% financing programs from the VA and from the USDA, respectively.
Even Fannie Mae and Freddie Mac boast a modest 5% downpayment program.

Get Mortgage Rates For New Construction

There are currently 142,000 new homes for sale nationwide -- less than 3,000 per state. No wonder builder confidence is soaring. The relative scarcity of new homes for sales has fueled competition and bidding wars, causing new home prices to rise to multi-year highs.
If you're looking at newly-built homes, therefore, and think you'll buy in mid- to late-2013, consider moving up your time frame. Not only will home prices likely be higher in a year's time, but mortgage rates are expected to be higher, too.