The U.S. housing market appears headed for a strong close to 2012.
According to the U.S. Census Bureau, the number of new homes sold jumped to 389,000 units in September 2012 on a seasonally-adjusted, annualized basis.
Not since the expiration of the $8,000 federal home buyer tax credit in April 2010 have new homes sold at such volumes.
September’s tally marks a 5.7 percent increase from the month prior, and a 27 percent increase from September 2011. There are now just 145,000 new homes for sale nationwide and, according to the National Association of Homebuilders, buyer demand continues to grow.
At today’s pace of home sales, the entire U.S. inventory of new homes for sale would sell out in 4.5 months. By way of comparison, in January 2009, new home supply was 12.1 months.
When home supplies dip below 6.0 months, analysts say, it signifies a “seller’s market”; one in which sellers tend to benefit from negotiation leverage over buyers. The national New Home Supply has been below 6.0 months since October 2011.
Perhaps that’s one reason why the average new home sale price has climbed 14.5 percent over the past 12 months to $292,400; and why median new home sales prices have made a similar jump.
With builders reporting prospective buyer foot traffic at its highest level since 2006, home supplies are shrinking at a time when buyer demand is rising. Low mortgage rates and affordable housing choices contribute, too.
30-year fixed rate mortgage rates have been under 4 percent for all of 2012, and are now under 3.50% nationwide. Low rates make for low monthly payments but, like home prices, conditions can’t remain buyer-friendly forever.
For today’s home buyers of new construction, the outlook for finding “great deals” in 2013 may be grim. New home prices are expected to rise and supplies will continue to get scarce. The best homes in the new construction market, therefore, may be the ones you buy today.
By early-next year, low home prices may be gone, and low mortgage rates may be, too.
Mortgage rates in Florida continue to troll near all-time lows, boosting the purchasing power of home buyers statewide.
According to Freddie Mac’s most recent Primary Mortgage Market survey, the average 30-year fixed rate mortgage is now 3.39 percent nationwide, just three ticks off an all-time low. At the start of last quarter, 30-year fixed rate mortgage rates averaged 3.62 percent.
One year ago, they averaged 4.12%.
When mortgage rates are falling, they present Jacksonville area home buyers with interesting options. Because of lower rates, buyers can choose to tighten their household budgets, buying an ideal home but paying less to own it each month. Or, for buyers who shop for homes by “monthly payment”, falling mortgage rates put more homes with affordability’s reach.
As a real-life example, for a buyer whose monthly principal + interest mortgage payment is limited to $1,000 per month, and whom opts for a 30-year fixed rate mortgage, as compared to January of this year, the maximum property purchase price has climbed 6.6%, or $14,000 in list price.
Consider this comparison:
- January 2012 : A payment of $1,000 afforded a maximum loan size of $211,756
- October 2012 : A payment of $1,000 affords a maximum loan size of $225,771
The 6.6 percent increase in affordability outpaces this year’s rise in home prices and is one reason why the U.S. housing market is improving. Slowly and steadily, the U.S. economy is improving and “good deals” in housing are becoming harder to find. In addition, because homeownership is now less expensive than renting in many U.S. cities, home demand among buyers continues to rise.
For today’s home buyer, market conditions appear ripe. Mortgage rates are near all-time lows, low-downpayment mortgage program remain plentiful, and home values have been rising since late-2011. Within 6 months, rates may be up and homes prices, too. Purchasing power would decline, decreasing home affordability nationwide.
The best “deals” in housing, therefore, may be the ones you find today.
The Federal Open Market Committee ends a 2-day meeting today, the group’s sixth of 8 scheduled meetings this year. As a Ponte Vedra Beach home buyer or would-be refinancer, be ready for mortgage rates to change.
The Federal Open Market Committee is a 12-person sub-committee of the Federal Reserve. Led by Fed Chairman Ben Bernanke, it’s the group within the Fed tasked with voting on U.S. monetary policy.
The act for which the FOMC is most well-known is its management of the Fed Funds Rate. The Fed Funds Rate is the interest rate at which banks borrow money from each other overnight. It’s one of several interest rates under Federal Reserve management.
“Mortgage rates”, however, is not among them.
The Federal Reserve does not set or make mortgage rates — Wall Street does. Further, there is no historical correlation between the Fed Funds Rate and the average conforming 30-year fixed rate mortgage rate. At times, the two benchmark rates move in the same direction. Other times, they diverge.
They’ve been apart by as much as 5.29 percent, and have been as near as 0.52 percent.
Today, the spread between the Fed Funds Rate and the 30-year fixed rate mortgage rate is roughly 3.34%. That will change beginning at 12:30 PM ET today. This is the time at which the FOMC adjourns and releases its public statement to the markets.
The FOMC is expected to announce no change in the Fed Funds Rate, leaving it within its current target range of 0.000-0.250%. How mortgage rates throughout Florida respond to the Fed, though, will depend on whether the nation’s central banker adds new market stimulus in the form of a third round of quantitative easing.
If the Fed adds new stimulus and it’s deemed large enough to be propel the economy ahead, stock markets will gain and bond markets should, too. This would lead mortgage rates lower. Conversely, if the size of the stimulus is deemed too small to be effective, mortgage rates will rise. Maybe by a lot.
Most Jacksonville home buyers have never given thought to anything other than a 30 year fixed rate mortgage before. However, today is a great time to consider a 15 year fixed rate mortgage.
15-Year Fixed Rates are at the Lowest Point Ever
Whether considering a refinance or a new purchase, now is a great time to to give careful consideration to a 15-year term as opposed to the traditional 30-year term. In fact, Freddie Mac’s weekly mortgage rate survey of about 120 lenders in America shows the 15-year fixed rate mortgage of 3.3 percent to be at its lowest point ever in history! (This is after paying .6 discount points at closing.)
The beauty of the 15 year fixed rate mortgage is in the substantial reduction in the total interest costs of the loan. Some people shy away because of the increase in the monthly payment, however careful and conservative financial planning can reduce the impact of this while providing tremendous benefits both short-term and long-term.
Given the current low rates, the 15 year fixed rate loan requires a P&I (principal plus interest) payment of approximately $705 per $100,000 borrowed. Compared to the 30 year fixed rate loan, this is about 46 percent more but translates into a total savings of $47,000 in interest per $100,000 borrowed over the life of the loan. That’s a lot of greenbacks!
For a young family wanting to save for their children’s college fund or their own retirement, that is money in the bank and in their pocket! Not to mention the continued additional savings which can be invested after the mortgage is paid off.
My wife and I decided on the 15 year loan when we bought our current home 10 years ago and have never regretted it once. The downside (if any) is that once you have made the commitment to the 15 year rate you can’t switch to a 30 year loan without refinancing and that can be costly. With that in mind, give it careful consideration before pulling the trigger and discuss with your CPA or Financial Planner.