The Mortgage Corner
The National Association of Realtors reports total existing-home sales, which are completed transactions that include single-family homes, townhomes, condominiums and co-ops, increased 2.4 percent to a seasonally adjusted annual rate of 5.17 million in September from 5.05 million in August. Sales are now at their highest pace of 2014, but still remain 1.7 percent below the 5.26 million-unit level from last September.
That has to be partly due to falling interest rates, with conforming 30-year fixed rates dropping as low as 3.625 percent for a 1 point origination fee in California. But also rents are soaring, up more than 10 percent year-over-year in five large rental markets -- San Francisco, Sacramento, Oakland, Denver, and Miami.
Lawrence Yun, NAR chief economist, says the improved demand for buying seen since the spring has carried into the fall. “Low interest rates and price gains holding steady led to September’s healthy increase, even with investor activity remaining on par with last month’s marked decline,” he said. “Traditional buyers are entering a less competitive market with fewer investors searching for available homes, but may also face a slight decline in choices due to the fact that inventory generally falls heading into the winter.”
Graph: Calculated Risk
Total housing inventory at the end of September (blue line in graph) fell 1.3 percent to 2.30 million existing homes available for sale, which represents a 5.3-month supply (red line) at the current sales pace. This is far too few homes available for sale, which means a greater demand for new home construction. Despite fewer homes for sale in September, unsold inventory is still 6.0 percent higher than a year ago, when there were 2.17 million existing homes available for sale.
And housing prices continue to rise, though more slowly than last year. The median existing-home price for all housing types in September was $209,700, which is 5.6 percent above September 2013. This marks the 31st consecutive month of year-over-year price gains.
Why the falling interest rates? Worries of slower worldwide growth are worrying stock prices. The 10-year Treasury note yield dropped below 2 percent for the first time in 16 months. This has even caused Federal Reserve Vice Chairman Stanley Fischer to voice fears that the slowdown in the Eurozone in particular could slow U.S. growth. Why? Because it lowers the demand for U.S. goods and services.
Fischer said in a speech recently that, “if foreign growth is weaker than anticipated, the consequences for the U.S. economy could lead the Fed to remove accommodation more slowly than otherwise.”
Lawrence Yun added, “Economic instability overseas is leading to volatility in the stock market and is causing investors to seek safer bets, which will likely keep interest rates in upcoming weeks hovering near or below where they are now,” said Yun. “This is welcoming news for consumers looking to buy, although they could temporarily become more cautious by less certain economic conditions.”
Of interest are all-cash sales, which tell us whether the mortgage markets are functioning better, or worse. Fewer all-cash sales generally mean banks are easing their credit standards. All-cash sales were 24 percent of transactions in September, said the NAR, up slightly from August (23 percent) but down from 33 percent in September of last year. Individual investors, who account for many cash sales, purchased 14 percent of homes in September, up from 12 percent last month but below September 2013 (19 percent). Sixty-three percent of investors paid cash in September.
Distressed homes – foreclosures and short sales – increased slightly in September to 10 percent from 8 percent in August, but are down from 14 percent a year ago, another reason there are fewer all-cash purchases. Seven percent of September sales were foreclosures and 3 percent were short sales. Foreclosures sold for an average discount of 14 percent below market value in September (same as in August), while short sales were discounted 14 percent (10 percent in August).
Harlan Green © 2014
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