Low inventory results in sluggish home sales
Pending home sales are dropping, despite mortgage interest rates being at near record lows, the National Association of Realtors reported. Those mortgage rates have finally started a slow upward trek after many weeks of declining.
In December, pending home sales nationally fell 3.7 percent month-over-month. Still, NAR's Pending Home Sales Index, a forward-looking indicator based on contract signings, remained about 6 percent above year-over-year levels for the fourth consecutive month.
Lawrence Yun, NAR's chief economist, says that inventory problems mixed with slightly higher home prices contributed to December's decline in contract signings. Total inventory dropped in December for the first time in 16 months, leaving homebuyers with fewer choices.
"With interest rates at lows not seen since early 2013, the strength in existing sales in upcoming months will largely depend on the willingness of current homeowners to realize their equity gains from the past couple of years and trade up," Yun said.
"More jobs, increasing consumer confidence, less expensive mortgage insurance and new low down-payment programs coming into the marketplace will likely lead to more demand from first-time buyers."
Q. Are mortgages getting easier to obtain?
A. According to recent reports, mortgage availability is improving. For example, mortgage availability increased in January, according to the Mortgage Credit Availability Index, a report from the Mortgage Bankers Association.
The MCAI increased 1.8 percent to 117.8 in January. A decline in the MCAI indicates that lending standards are tightening, while increases in the index are indicative of a loosening of credit. The index was benchmarked to 100 in March 2012.
"Several new initiatives aimed at making mortgage credit more available and affordable to consumers were recently announced and resulted in a net loosening of credit over the month," said Mike Fratantoni, MBA's chief economist.
Q. Is the homeownership rate falling?
A. Yes. It's now at a 20-year low. The U.S. homeownership rate posted declines across all four regions of the country in the fourth quarter of last year, plunging to its lowest level since the third quarter of 1994, according to a report from the National Association of Realtors.
But a sharp rebound in household formation during the quarter has more economists optimistic that a turnaround in the homeownership rate is on the horizon.
The homeownership rate fell from 64.3 percent in the third quarter to 63.9 percent in the fourth quarter, reaching a 20-month low, the Commerce Department reported. In 2004, the homeownership rate peaked at 69.4 percent.
Q. Are newly constructed homes selling more rapidly than existing homes?
A. Yes. New-home sales are growing more rapidly. Sales of newly built, single-family homes rose 11.6 percent in December to a seasonally adjusted annual rate of 481,000 units, according to newly released data by the Department of Housing and Urban Development and the U.S. Census Bureau.
"This uptick is in line with what builders are telling us in surveys and on the ground - that they are seeing increased traffic and more serious buyers in the market for single-family homes," said Tom Woods, chairman of the National Association of Home Builders.
"After a slow start to 2014 precipitated by bad weather conditions, new-home sales have ramped up in the second half of the year," said NAHB Chief Economist David Crowe. "We can expect this momentum to continue into 2015 with the release of pent-up demand, particularly as existing homeowners are trading up."
Q. Are commercial mortgage loans expected to increase this year?
A. The projections for this year are very positive. The Mortgage Bankers Association projects that originations of commercial and multifamily mortgages will grow to $414 billion in 2015, an increase of 7 percent from 2014 volumes, and will continue to rise to $430 billion in 2016.
Multifamily mortgages originated by mortgage bankers are forecast to be $152 billion in 2015.
"Commercial and multifamily real estate finance markets are strong," said Jamie Woodwell, MBA's vice president of commercial real estate research. "Rising property values, improving property fundamentals, low interest rates and higher loan maturity volumes should all help boost mortgage borrowing and lending in the coming year."
• Email Jim Woodard at storyjim@aol.com.
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