Housing Sales Higher, Interest Rates Plunging

The Mortgage Corner

Calculatedriskblog

Total July existing-home sales, https://www.nar.realtor/existing-home-sales that include single-family homes, townhomes, condominiums and co-ops, rose 2.5 percent from June to a seasonally adjusted annual rate of 5.42 million in July, according to the National Association of Realtors (NAR). Overall sales are up 0.6 percent from a year ago (5.39 million in July 2018).

FRED

It might be that sharply lower interest rates are reviving the housing market. The 30-year conforming fixed rate is now just 3.25 percent for a one point origination fee, the lowest since the Great Recession. This is bringing back more housing in the affordable range for middle-income buyers, but not yet for first-time, entry-level buyers. And there are predictions that interest rates could go lower.

“Falling mortgage rates are improving housing affordability and nudging buyers into the market,” said Lawrence Yun, NAR’s chief economist. However, he added that the supply of affordable housing is severely low. “The shortage of lower-priced homes have markedly pushed up home prices.”

The Pending Home Sales released earlier, www.nar.realtor/pending-home-sales, is a more important indicator of sales’ trend. It is a forward-looking indicator based on contract signings that moved up 2.8 percent to 108.3 in June in the NAR’s pending sales index, from 105.4 in May. Year-over-year contract signings jumped 1.6 percent, snapping a 17-month streak of annual decreases.

Lawrence Yun said the 2.8 percent increase in pending sales can be attributed to the current favorable conditions and predicted the rise is likely the start of a positive trend for home sales.

“Job growth is doing well, the stock market is near an all-time high and home values are consistently increasing. When you combine that with the incredibly low mortgage rates, it is not surprising to now see two straight months of increases,” he said.

Home price appreciation has been much stronger in the lower-price tier compared to homes sold in the upper-price tier, says the NAR, based on the analysis of proprietary deed records data from Black Knight, Inc. and Realtors Property Resource®.

“Homes are selling at a breakneck pace, in less than a month, on average, for existing homes and three months for newly constructed homes,” Yung continued. “Furthermore, homeowners’ equity in real estate has doubled over the past six years to now nearly $16 trillion. But the number of potential buyers exceeds the number of homes available. We need to see sizable growth in inventory, particularly of entry-level homes, to assure wider access to homeownership.”

There is speculation that interest rates might even trend lower, which could continue to boost housing sales, if no recession looms. Harvard economics Professor Kenneth Rogoff said recently that it isn’t out of realm of possibility that more Central Banks might introduce negative interest rate yields, as is already the case in the EU and Japan, to prevent another recession

The Guardian reports that Jyske Bank, Denmark’s third largest, has now begun offering borrowers a 10-year deal at -0.5 percent, while another Danish bank, Nordea, says it will begin offering 20-year fixed-rate deals at 0 percent and a 30-year mortgage at 0.5 percent.

We have come a long way from 1981 when the inflation rate reached 14 percent, and 30-year mortgage rate soared to 18 percent, believe it or not. It is very good news for the U.S. housing market—if our economy continues to perform, that is.

Harlan Green © 2019

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