Tuesday, November 29, 2011
New Home Supplies Fall To An 18-Month Low
If you plan to buy of new construction in New York sometime in 2012, don't expect today's low prices. Like everything in housing of late, the market for newly-built homes appears to be stabilizing and, in some markets, improving.
As foreshadowed by this month's strong Homebuilder Confidence survey, the Census Bureau reports that the number of new homes sold rose to a 6-month high in October, climbing to 307,000 units on a seasonally-adjusted, annualized basis.
A "new home" is a home that is considered new construction. It's the opposite of an "existing home".
Home buyers are comparing new construction to home resales and liking what they see. At the current sales pace, the nation's complete new home inventory would now be depleted in just 6.3 months. This marks the lowest home supply since April 2010 -- the last month of the last year's federal homebuyer tax credit.
By building only to meet new demand, builders are keeping home supplies in check, and home prices stable. They've also found a niche market -- 80% of homes sold last month sold for less than $300,000.
Split by region, the Census Bureau reports October's New Home Sales as follows :
- Northeast Region : +0.0% from September 2011
- Midwest Region : +22.2% from September 2011
- South Region : -9.5% from September 2011
- West Region : -14.9% from September 2011
Unfortunately, the data may be incorrect.
Although the October New Home Sales report says that sales climbed 1.3 percent last month, the government's data was published with a ±19.7% margin of error. This means that the actual New Home Sales reading may have been as high as +21.0 percent, or as low as -18.4 percent. Because the range of values includes both positive and negative values, the Census Bureau assigned its October data "zero confidence".
As home buyers, then, we can't take our market cues from the published data. Instead, we should look to other metrics including Housing Starts data and the aforementioned homebuilder confidence survey. Each points to strength in the new home market, and foretells higher home prices in 2012.
If you're in the market for new construction, consider writing an offer soon. Home prices remain low and mortgage rates do, too -- a combination that keeps home payments low. Next year, that may not be the case.
Monday, November 28, 2011
Home Improvement Projects : How Much Equity Will You Build?
Home improvement projects are booming, expected to cross $110 billion in total volume this quarter. Unlike in recent years, however, the projects aren't helping to create much new home equity.
According to Remodeling Magazine's Cost vs Value Report 2011-2012, for each home improvement dollar spent in 2012, homeowners can expect to recoup just 58 cents in home equity.
This figure is down sharply from 2005, when the cost-to-value ratio was 87 percent.
Today's Greece homeowners get a much smaller payoff on their home improvement projects. If you're planning to remodel/update in preparation for sale, therefore, consider the following projects, each of which carries a high cost-to-value ratio.
From Remodeling Magazine's "Mid-Range Project" list :
- Steel Entry Door Replacement : Cost, $1,238; Recoup, 73.0%
- Attic Bedroom : Cost, $50,184; Recoup, 72.5%
- Minor Kitchen Remodel : Cost, $19,588; Recoup, 72.1%
- Garage Door Replacement : Cost, $1,512; Recoup, 71.9%
- Wood Deck Addition : Cost, $10,350; Recoup 70.1%
By contrast, other projects carry a low cost-to-value ratio, and should only be undertaken if the project's utility exceeds its cost. These projects don't do much to raise a home's resale value.
- Home Office Remodel : Cost, $27,963; Recoup, 42.9%
- Sunroom Addition : Cost, $34,133; Recoup, 45.9%
- Backup Power Generator : Cost, $14,760; Recoup, 47.5%
- Bathroom Addition : Cost, $140,096512; Recoup, 51.0%
- Fiberglass Entry Door Replacement : Cost, $3,536; Recoup 56.3%
In the "Upscale Projects" category, projects including the replacement of doors, siding and windows occupy the list's first 6 slots in terms of cost-to-value.
If you're planning a home improvement project over the next few months, the timing is right -- both contractor costs and material costs are low nationwide, and improving a home can extend its useful life.
Friday, November 25, 2011
Conforming Loan Limits Unchanged For 2012
A conforming mortgage is one that, literally, conforms to the mortgage guidelines as set forth by Fannie Mae and Freddie Mac.
Conforming mortgage guidelines are Fannie's and Freddie's eligibility standards; an underwriter's series of check-boxes to determine whether a given loan should be approved.
Among the many traits of a conforming mortgage is "loan size".
Each year, the government re-assesses its maximum allowable loan size based on "typical" housing costs nationwide. Loans that fall at, or below, this amount meet conforming mortgage guidelines. Loans in excess of this limit are known as "jumbo" loans.
Between 1980 and 2006, as home values increased, conforming loan limits did, too, rising from $93,750 to $417,000. Since 2006, however, despite falling home prices in many U.S. markets, the conforming loan limit has held steady. This will remain true for 2012 as well.
In 2012, for the 7th straight year, the national, single-family conforming mortgage loan limit will remain at $417,000.
The complete 2012 conforming loan limit breakdown, by property type :
- 1-unit properties : $417,000
- 2-unit properties : $533,850
- 3-unit properties : $645,300
- 4-unit properties : $801,950
However, there are some areas nationally that have earned "loan limit exceptions" based on the local median sales prices. These areas are known as "high-cost" areas and loan limits within these regions range from $417,001 to a maximum of $625,500.
Some examples of high-cost areas include San Francisco (along with a most of California), New York City, and most of Hawaii and Alaska. Nationally, there are approximately 200 such "high-cost" areas.
Verify your local conforming loan limit and loan limits across New York via the Fannie Mae website. A complete county-by-county list is published online.
Wednesday, November 23, 2011
More Sales, Less Inventory : Home Prices Headed Higher?
The housing market continues to signal that a broad rebound is underway. In October, despite sparse home inventory, the number of properties sold increased 1.4% nationwide.
According to data from the National Association of REALTORS®, on a seasonally-adjusted, annualized basis, October Existing Home Sales gained 70,000 units as compared to September, registering 4.97 million existing homes sold overall.
An "existing home" is a home that has been previously occupied and, as compared to prior months, the stock of homes for sale is depleted.
Just 3.3 million homes were listed for sale last month. This represents a 2 percent drop from September and marks the sparsest home resale inventory of 2011.
The current home supply would last 8.0 months at today's sales pace -- the fastest rate since January 2010.
The real estate trade group's report contained other noteworthy statistics, too :
- 34 percent of all sales were made to first-time buyers
- 29 percent of all sales were made with cash
- 28 percent of all sales were for foreclosed homes, or short sales
It also said that one-third of transactions "failed" as a result of homes not appraising for the purchase price; failure to achieve a mortgage approval; and, insurmountable home inspection issues.
This 33% failure rate is huge as compared to September 2011 (18%) and October 2010 (8%). It underscores the importance of getting pre-qualified to purchase, and of selecting a home "in good condition".
For today's Greece home buyer, October's Existing Home Sales may be a "buy signal". Supplies are falling and sales are increasing. Elementary economics says home prices should begin rising, if they haven't already.
Remember : The data we're seeing is already 30 days old. Today's market may be markedly improved already.
The good news is that mortgage rates remain low. Freddie Mac reports that the average 30-year fixed rate mortgage rate is 4.000% with 0.7 discount points, making homes as affordable as they've been in history.
With rising home values, you may end up paying more to purchase your new home, but at least you'll pay less to finance it.