The Financial FAQs
Sales of new single-family houses in February 2014 were at a seasonally adjusted annual rate of 440,000, according to U.S. Census Bureau and the Department of Housing and Urban Development estimates. This is 3.3 percent below the revised January rate of 455,000 and is 1.1 percent below the February 2013 estimate of 445,000.
What has happened to new-home sales, with annual housing starts now above 900,000 units? Both housing prices and interest rates have been rising, for starters. And the Case-Shiller Home Price index is still rising annually at 13.2 percent, 0.8 percent in January, using a 3-month average. And it takes at least 9 months for housing construction to be reflected in completions that would influence new-home sales.
It could also be the winter weather in two-thirds of the country, and inventories are still low, at 5.2 months’ supply. But more likely it is that home ownership is increasingly difficult for first-time homebuyers, particularly. Tough lending standards for Fannie Mae and Freddie Mac, with higher credit score requirements and fees have made borrowing less attractive.
But that may be changing in 2014, as lenders seem to be easing their credit standards, both because default rates are down and housing prices continue to rise. The average FICO score on all closed loans was 724 in February 2014 compared to 745 in February 2013, or a 21-point decrease, according to a report released by Ellie Mae, a mortgage technology firm. (Under a system devised by Fair Isaac Corp., FICO credit scores run on a scale from 300 to 850.) Last month, 33 percent of closed loans had an average FICO score under 700 compared to 24 percent in February 2013.
“The share of purchase loans jumped four percentage points, representing 57 percent of all closed loans in February 2014,” said Jonathan Corr, president and chief operating officer of Ellie Mae. “This is the first time in four months that the share of purchase loans increased month over month and the largest one-month increase since August 2013, when the share of purchase loans also jumped four percentage points.”
“Credit requirements remained steady month over month, but there has been significant loosening compared to where we were a year ago,” said Corr.
So it may be too early to see a purchase trend in 2014 for new and existing-home sales. Total existing-home sales, which are completed transactions that include single-family homes, townhomes, condominiums and co-ops, declined 0.4 percent to a seasonally adjusted annual rate of 4.60 million in February from 4.62 million in January, and 7.1 percent below the 4.95 million-unit level in February 2013.
Interest rates fluctuations and conforming loan underwriting standards may be the deciding factors, which in turn affect consumer confidence. How much pentup demand is there with new households is another factor. So we will probably have to wait to see how the new selling season fares, taking into account all these factors.
Harlan Green © 2014
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