The Mortgage Corner
It’s finally happened. Housing is now leading this 7-year recovery—finally. It’s taken a long time for those wanting to form new households to leave their parents, or school, or even pay down their education loans sufficiently to be able to buy a home. It is in large part to be due to historic low mortgage rates, since household incomes are still barely rising, as well as rapidly rising rents we have discussed in past columns.
New-home sales, a leading indicator of future growth, have reached a 9-year high, according to the US Census Bureau. New U.S. single-family home sales rose in July, as demand increased broadly, brightening the housing market outlook.
This is while total existing-home sales, which are completed transactions that include single-family homes, townhomes, condominiums and co-ops, fell 3.2 percent to a seasonally adjusted annual rate of 5.39 million in July from 5.57 million in June, said the National Association of Realtors. But that’s only the second time in the last 21 months, sales are now below (1.6 percent) a year ago (5.48 million).
New home sales surged 12.4 percent to a seasonally adjusted annual rate of 654,000 units last month, the highest level since October 2007. June's sales pace was revised down to 582,000 units from the previously reported 592,000 units.
Still, sales were up 31.3 percent from a year ago, said Reuters. Economists polled by Reuters had forecast single-family home sales, which account for about 9.6 percent of overall home sales, slipping to a rate of 580,000 units last month.
“July’s positive report shows there is a need for new single-family homes, buoyed by increased household formation, job gains and attractive mortgage rates,” said NAHB Chief Economist Robert Dietz. “This uptick in demand should translate into increased housing production throughout 2016 and into next year.”
And it will give a boost to housing construction, among other sectors, as there is a mere 4.3-month supply of homes left on the market, something that will boost future construction. The inventory of new homes for sale was 233,000 in July, which is a 4.3-month supply at the current sales pace. The median sales price of new houses sold was $294,600.
This has to be why July housing construction also rose a strong 2.1 percent to a 1.211 million annualized rate which comes on top of June's 5.6 percent surge. Starts for single-family homes, the most important category in terms of economic growth, rose a very respectable 0.5 percent in July but were dwarfed by a 5.0 percent surge for multi-family homes. These results point to ongoing strength for construction, as well.
And Lawrence Yun, NAR chief economist, says existing sales fell off track only slightly in July after steadily climbing the last four months. “Severely restrained inventory and the tightening grip it’s putting on affordability is the primary culprit for the considerable sales slump throughout much of the country last month,” he said. “Realtors® are reporting diminished buyer traffic because of the scarce number of affordable homes on the market, and the lack of supply is stifling the efforts of many prospective buyers attempting to purchase while mortgage rates hover at historical lows.”The dearth of supply is mainly in the lower prices ranges with lower profit margins, needless to say. Dr. Yun adds, “Furthermore, with new condo construction barely budging and currently making up only a small sliver of multi-family construction, sales suffered last month as condo buyers faced even stiffer supply constraints than those looking to purchase a single-family home.”
The result is surging housing prices. The median existing-home price for all housing types in July was $244,100, up 5.3 percent from July 2015 ($231,800). July’s price increase marks the 53rd consecutive month of year-over-year gains. That is why the share of first-time buyers was 32 percent in July, which is below last month (33 percent) but up from 28 percent a year ago. That is sad, as entry level first-timers have made up 40 percent of buyers in better times. First-time buyers represented 30 percent of sales in all of 2015.
But if Janet Yellen and her Fed Governors give in to the cry by inflation hawks for higher interest rates just because Q3 and Q4 growth may be slightly higher than the horrid current GDP growth (how about 1.2 percent?), as we said last week, the housing rally (if you can call it that) would be nipped in the bud. It’s only because of those low interest rates that housing is becoming more affordable for those that can afford to buy—which is the diminished American middle class.
Harlan Green © 2016
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