Increase in Sales of Existing and New Homes

Existing Home Sales

Existing home sales, as reported by the National Association of Realtors (NAR), surged 14.7% in December, including an increase in the first-time buyer share to 32%, the highest share since August. December sales snapped back from a November decline partially attributable to delays in closings from the rollout of the Know Before You Owe mortgage disclosure rule by the Consumer Financial Protection Bureau (CFPB). The new rule was designed to help consumers understand their loan options and avoid closing cost surprises. Total existing home sales in December increased to a seasonally adjusted rate of 5.46 million units combined for single-family homes, townhomes, condominiums and co-ops, up from 4.76 million units in November. December existing sales were up 7.7% from the same period a year ago.

Existing sales increased in all regions, ranging from 8.7% in the Northeast to 23.2% in the West. Year-over-year, all regions increased, ranging from 4.6% in the South to 11.9% in the Northeast.

Total housing inventory decreased by 12.3% in December, and is 3.8% lower than its level a year ago. At the current sales rate, the December unsold inventory represents a 3.9-month supply, down from a 5.1-month supply in November. Some 32% of homes sold in December were on the market for less than a month.

Distressed sales are defined as foreclosures and short sales sold at deep discounts. The distressed sales share decreased to 8% in December from 9% in November. The December all-cash sales share decreased to 24% from 27% in November and 26% in December 2014. Individual investors purchased a 15% share in December, down from 16% in November and 17% a year ago.

The December median sales price of $224,100 was 7.6% above last December, and represents the 46th consecutive month of year-over-year increase. The median condominium/co-op price of $209,900 in December was up 4.9% from last December.

Although the Pending Home Sales Index fell slightly in November, the sharp volatility in November and December sales was a function of implementing a new regulation. Builder sentiment remains strong, and the tight inventory of existing homes bodes well for new single-family sales in 2016.

“This is a really good indicator that the real estate market is returning to normal levels. When existing home sales rise it stimulates sales of new homes, and it stimulates remodeling activity," said Home Builders Association of Greenville President Joe Hoover, APB, of Hoover Custom Homes.

New Home Sales

Sales of newly built, single-family homes rose 14.5% to 501,000 units in 2015: the highest level since 2007, according to newly released data from the Department of Housing and Urban Development and the U.S. Census Bureau. Meanwhile, sales in December increased 10.8% to a seasonally adjusted annual rate of 544,000 from an upwardly revised November reading.

“The December sales report is a great end to a very strong year,” said National Association of Home Builders Chairman Ed Brady. “As we move forward in 2016, we should see the housing market continue to make lasting gains.”

“Relatively low interest rates and an improving economy are motivating buyers to make a new-home purchase,” said National Association of Home Builders Chief Economist David Crowe. “Builders are upping their inventory in response to heightened consumer interest. Housing inventory is now at its highest level since October 2009.”

Sales increased in all four regions in December. The Midwest, West, Northeast and South all posted respective gains of 31.6%, 21%, 20.85% and 0.4%.

The inventory of new homes for sale was 237,000 units in December, a 5.2-month supply at the current sales pace.

Combining the reports of increasing sales of existing and new homes points to an overall increase in the housing market. Considering recent history, those in the building industry should always be cautious, but these reports point to a strengthening economy.

i

FHFA Index Shows Mortgage Interest Rates Increased in December

Nationally, interest rates on conventional purchase-money mortgages increased from November to December, according to several indices of new mortgage contracts.

The National Average Contract Mortgage Rate for the Purchase of Previously Occupied Homes by Combined Lenders Index was 3.97 percent for loans closed in late November, up 12 basis points from 3.85 percent in November.

The average interest rate on all mortgage loans was 3.96 percent, up 10 basis points from 3.86 in November.

The average interest rate on conventional, 30-year, fixed-rate mortgages of $417,000 or less was 4.20 percent, up 12 basis points from 4.08 in November.

The effective interest rate on all mortgage loans was 4.10 percent in December, up 9 basis points from 4.01 percent in November. The effective interest rate accounts for the addition of initial fees and charges over the life of the mortgage.

The average loan amount for all loans was $318,000 in December, down $1,800 from $319,800 in November.

FHFA will release January index values Thursday, February 25, 2016. 

Source: FHFA

Technical note: The indices are based on a small monthly survey of mortgage lenders, which may not be representative. The sample is not a statistical sample but is rather a convenience sample. Survey respondents were asked to report terms and conditions of all conventional, single-family, fully amortized purchase-money loans closed during the last five working days of the month. Unless otherwise specified, the indices include 15-year mortgages and adjustable-rate mortgages. The indices do not include mortgages guaranteed or insured by either the Federal Housing Administration or the U.S. Department of Veterans Affairs. The indices also excluded refinancing loans and balloon loans. December 2015 values are based on 3,173 reported loans from 14 lenders, which include savings associations, mortgage companies, commercial banks, and mutual savings banks.

  

FHFA House Price Index Up 0.5 Percent in November

U.S. house prices rose in November, up 0.5 percent on a seasonally adjusted basis from the previous month, according to the Federal Housing Finance Agency (FHFA) monthly House Price Index (HPI). The previously reported 0.5 percent increase in October is unchanged.

The FHFA monthly HPI is calculated using home sales price information from mortgages sold to, or guaranteed by, Fannie Mae and Freddie Mac. From November 2014 to November 2015, house prices were up 5.9 percent. The index levels for October and November 2015 exceeded the prior peak level from March 2007.

For the nine census divisions, seasonally adjusted monthly price changes from October 2015 to November 2015 ranged from -0.4 percentin the West South Central division to +1.8 percent in the Mountain division. The 12-month changes were all positive, ranging from +2.6 percent in the Middle Atlantic division to +10.0 percent in the Mountain division.

Monthly index values and appreciation rate estimates for recent periods are provided in the table and graphs on the following pages. Complete historical data are available on the Downloadable HPI Data page.

For detailed information on the monthly HPI, see HPI Frequently Asked Questions (FAQ). The next HPI report will be released February 25, 2016 and will include monthly data through December 2015 and quarterly data for the fourth quarter of 2015.

FHFA has published HPI release dates for 2016, which can be found on the HPI Release dates page.

Millennials Will Shape Housing Preferences

The millennial generation is poised to make a significant impact on home design with its strong preferences for energy efficiency and smart-home technology; comfortable and workable kitchens; and more casual spaces, said speakers today from NAHB and Better Homes and Gardens.

But first, they have to move out of their parents’ homes and into a place of their own, said NAHB Assistant Vice President for Surveys and Research Rose Quint. About 15% of adults ages 25-34 live with a parent, about 3% more than the highest share of 12% between 1983 and 2007. That translates into 1.3 million people who normally “would be out there, forming their own households, demanding their own units,” either as buyers or renters, she said.

Quint had anticipated the new mortgage programs and looser mortgage insurance requirements that were unveiled a year ago would have led to an increase in consumers buying homes for the first time. But a look at the size of the typical new single-family home in 2015 found the opposite: home sizes grew to an average of 2,721 square feet, the highest yet, and an indication that the new-home market continues to be dominated by move-up buyers, rather than first-time buyers.

“Before we see that expected pullback in square footage and price, we’re going to have to see a significant return of the first-time buyer,” who is more likely to buy a smaller home at a lower price point, Quint said.

This year, home buyers say they are looking for homes with separate laundry rooms, Energy Star-rated appliances and windows, exterior lighting and a patio.

What they don’t want are rooms with cork flooring, elevators, pet washing stations, expansive outdoor kitchens and fireplaces, and two-story entryways and family rooms. And their countertops should be granite, but never laminate, according to a fall 2015 survey of potential buyers.

In terms of house type, buyers want a detached, single-family home: 65% of all buyers and 68% of millennials expressed that preference. That number rises to 72% among Gen-Xers (born between 1965 and 1979) but falls somewhat to 55% of those born before 1945, Quint said.

Better Homes and Gardens Brand Executive Editor Jill Waage echoed Quint’s findings on preferences for well-equipped kitchens and casual, comfortable living spaces – especially outdoor living rooms, where millennials want to entertain their families and friends.

What’s important about this generation is their comfort with technology. Millenials are “leading the way on this,” Waage said. “They are the first generation to walk into homeownership with a smartphone in their hands.”

These millennials want to use technology to make entertainment choices easier, monitor the comings and goings of packages, repairmen and their children, and improve their health and well-being. When it comes to product choices, “they’ve read the ratings, comments and reviews, and they know what it’s worth,” and have probably created a Google alert so they know when it’s on sale, she said.

Their home improvement preferences center on home organization and workspaces, as the separation between working in an office and telecommuting continues to blur.

“This generation is searching out ideas, following bloggers,” and creating Pinterest boards with their preferences, Waage said. “They’ve already curated their dream home online, saving it on their boards so they can [be ready] when the day finally comes.”

Positive Outlook for Housing Market

A firming economy, solid job growth, rising consumer confidence, higher household formations and pent-up demand are helping to bring buyers back into the marketplace, and these factors will bode well for housing in 2016, according to economists speaking at the NAHB International Builders’ Show in Las Vegas.

“There are a number of positive indicators that provide solid evidence this will be a good year for housing and the economy,” said NAHB Chief Economist David Crowe.

Private sector job growth has been averaging 240,000 per month over the past two years, GDP growth is expected to climb slightly above last year’s level and consumer confidence is nearly back to its pre-recession peak, Crowe noted.

Builders report their top concerns in 2016 include the cost and availability of developed lots and labor, federal environmental regulations and policies that are making it more expensive and difficult to build homes, and building materials prices.

Solid Gains for Single-Family Production
NAHB is forecasting 1.26 million total housing starts in 2016, up 13.4% from a projected 1.11 million starts in 2015.

Single-family production is expected to reach 840,000 units this year, an 18 percent increase from a projected tally of 711,000 units in 2015. Using the 2000-2003 period as a healthy benchmark when single-family starts averaged 1.34 million units on an annual basis, Crowe said the ongoing housing recovery will see single-family starts steadily climb from 55% of normal production at the end of the third quarter of 2015 all the way up to 87% of normal by the end of 2017.

On the multifamily side, NAHB is anticipating 417,000 starts in 2016, up 5% from an expected total of 397,000 units last year.

Meanwhile, residential remodeling activity is expected to register a 1.1% gain this year over 2015.

A Bright Regional Outlook – With One Exception
Delving below the national numbers, David Berson, chief economist at Nationwide Insurance, said that most regional housing markets look healthy.

Labor market conditions, a key driver of housing demand, are strong in many metropolitan statistical areas (MSAs) – supporting faster household formations and boosting local housing activity through rising incomes. These factors indicate that most of the 400 local housing markets “should see sustained growth in the coming year,” Berson said.

With the unemployment rate declining in 90 percent of the MSAs over the past year, Berson said that the housing fundamentals are the strongest in over a decade, a trend supported by the labor market, demographics and consumer preference to own.

However, Berson noted that many MSAs with strong ties to energy exploration and production in states including Louisiana, Texas, Wyoming and South Dakota are expected to see limited housing expansion in the near term, as low oil prices are reducing employment.

Mortgage Rates: From ‘Cheap’ to Low
Frank Nothaft, chief economist of CoreLogic, foresees solid fundamentals for housing in 2016. With 30-year fixed-rate mortgages running at or below 4% during the past year, Nothaft called them “cheap.” He said mortgage rates are expected to gradually rise one-quarter to one-half a percentage point this year up to 4.5%, going from “cheap to low.”

Nothaft added that overall home sales will rise 4-5 percent in 2016, led by a 13 percent gain for new home sales, with sales volume and growth strongest in the South and West. “There is stronger growth in households, population and demand for new housing” in these regions, he said.

Nationwide home prices this year will increase about 4-5% above last year’s level and are projected to reach the 2006 peak by mid-2017, Nothaft said. Tight mortgage credit for consumers is expected to ease slowly this year, but remain relatively tight compared to 15-20 years ago.