The Mortgage Corner

Both Existing and new-home sales rose again in September, “affirming that a sales recovery has begun”, said the National Association of Realtors. The surge seemed to come from both lower prices, and record-low interest rates. It was welcome news, as it also put a dent in the for sale inventory.

Existing-home sales, which are completed transactions that include single-family, townhomes, condominiums and co-ops, jumped 10.0 percent to a seasonally adjusted annual rate of 4.53 million in September from a downwardly revised 4.12 million in August, but remain 19.1 percent below the 5.60 million-unit pace in September 2009 when first-time buyers were ramping up in advance of the initial deadline for the tax credit last November.

And new home sales for September confirm expectations that the post-stimulus housing sector is now stabilizing. New home sales rose 6.6 percent to a 307,000 annual rate. Yet strength isn’t evenly balanced as the month’s gain is heavily centered in the Midwest. The Northeast and South do show gains though sales contracted noticeably in the West.

The report’s price readings are mixed which is a plus given some indications that prices are contracting, says Econoday. The median price for a new home rose 1.5 percent to $223,800, up an on-year 3.3 percent. The average price, a reading that’s sensitive to change at the very high-end of the market, fell 1.2 percent to $257,500 for an 11.3 year-over-year contraction.

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NAR chief economist Lawrence Yun said the housing market is in the early stages of recovery. “A housing recovery is taking place but will be choppy at times depending on the duration and impact of a foreclosure moratorium. But the overall direction should be a gradual rising trend in home sales with buyers responding to historically low mortgage interest rates and very favorable affordability conditions,” he said.

The national median existing-home price for all housing types was $171,700 in September, which is 2.4 percent below a year ago. Distressed homes accounted for 35 percent of sales in September compared with 34 percent in August; they were 29 percent in September 2009.

NAR President Vicki Cox Golder said, “A decade ago, mortgage rates were almost double what they are today, and they’re about one-and-a-half percentage points lower than the peak of the housing boom in 2005,” she said. “In addition, home prices are running about 22 percent less than five years ago when they were bid up by the biggest housing rush on record.”

And housing affordability conditions today are 60 percentage points higher than during the housing boom, so it has become a very strong buyers’ market, especially for families with long-term plans. “The savings today’s buyers are receiving are not a one-time benefit. Buyers with fixed-rate mortgages will save money every year they are living in their home – this is truly an example of how homeownership builds wealth over the long term,” Golder added.

A major question mark is the inventory overhang, which increased 8.9 percent in the month, even though months of supply dropped to 11 percent, due to the higher sales rate. “The year-over-year increase in inventory is very bad news because the reported inventory is already historically very high (around 4 million)”, said Calculated Risk, “and the 10.7 months of supply in September is far above normal.”

“Vacant homes and homes where mortgages have not been paid for an extended number of months need to be cleared from the market as quickly as possible, with a new set of buyers helping the recovery along a healthy path,” Yun said. “Inventory remains elevated and continues to favor buyers over sellers. A normal seasonal decline in inventory is expected through the upcoming months.”

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That may be so, but since the percentage total of distressed home sales has been stable, it could very well be that banks are working through their foreclosure inventory more quickly, which is good news. In fact, there is now a shortage of under $500,000 homes on the market in higher-priced areas.

The latest Federal Housing Finance Authority same-home prices for Government agency financed homes—which are just those moderately-priced homes—confirm that lower supply is driving up its prices. The FHFA index actually rose 0.4 percent, after a long string of declines.

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Single-family home sales increased 10.0 percent to a seasonally adjusted annual rate of 3.97 million in September from a pace of 3.61 million in August, but are 19.5 percent below the 4.93 million level in September 2009. The median existing single-family home price was $172,600 in September, down 1.9 percent from a year ago.

Existing condominium and co-op sales rose 9.8 percent to a seasonally adjusted annual rate of 560,000 in September from 510,000 in August, but are 16.2 percent lower than the 668,000-unit level one year ago. The median existing condo price was $165,400 in September, down 6.2 percent from September 2009.

Sales for existing and new-homes increased in all regions, except the West’s 9.9 percent decline in new-home sales. So once again it looks like an uneven RE recovery, with coastal and economically stable Midwest regions showing the most improvement.

Harlan Green © 2010