October was a month of home buying.

Fall housing activity helps end year on a strong note

By: James Abbey, December 1, 2015

With mortgage estimate quotes at record lows, it’s a great time to be in the market to buy a house. A substantial number of people took advantage of the favorable financing environment by doing that very thing in the first full month of fall, based on newly released statistics.

Single-family home purchases in October rose nearly 11 percent on a seasonally adjusted annual basis from the corresponding month in 2014, according to new numbers released by the U.S. Census Bureau and U.S. Department of Housing and Urban Development. In terms of raw numbers, 495,000 newly built residences were bought, up nearly 13 percent from the total number of houses bought nationwide in September.

David Crowe, NAHB chief economist, pointed out that people are snapping up homes almost as quickly as listings and free house values are advertised.

“Sales this year are running 15.7 percent ahead of 2014,” Crowe explained. “With a firming job market, affordable home prices, and rising pent-up demand, [this] report is another indicator that the housing market continues to move on a modest upward trajectory.”

“Mortgage rates haven’t been above 4 percent since mid-July.”

Aiding the home sales ascent are mortgage rates that have held at or below 4 percent for almost the entire year. For the week ending Nov. 25, 30-year fixed-rate mortgages averaged 3.9 percent, according to Freddie Mac’s most recent Primary Mortgage Market Survey. That’s down slightly from the previous seven-day period, but up from 3.1 percent versus year-ago levels.

It’s been four full months since 30-year FRMs have been in the 4 percent range. The last time rates were above this threshold was the week of July 23.

Preventing new-home sales from being even more robust than they already were in October was a slight drop in home buying activity in the South. Sales in this region fell approximately 1 percent in October on a year-over-year basis, according to the Commerce Department’s figures. More than compensating for the slide was the level of residential real estate buying in the Northeast. In the six states that represent this market, sales skyrocketed 135 percent. Meanwhile, in the Midwest and West, sales were solid but slower, at 5.3 percent and 8.9 percent, respectively.

Pending home sales gain ground
Not only were completed housing transactions swift in October, but so were the number of contract signings. According to the National Association of Realtors, pending home sales climbed to 107.5 on NAR’s Pending Home Sales Index, up from 103.7 last year at the same time. This marks the 14th month in a row that the PHSI has risen.

Similar to the high level of new-home sales in New England, pending home sales were swift in the six-state region as well, noted Lawrence Yun, NAR chief economist.

“Contract signings in October made the most strides in the Northeast, which hasn’t seen much of the drastic price appreciation and supply constraints that are occurring in other parts of the country,” Yun pointed out. “In the most competitive metro areas – particularly those in the South and West – affordability concerns remain heightened as low inventory continues to drive up prices.”

Limited inventory keeping home prices elevated
While low-interest mortgage rates are helping to offset higher asking prices, Yun stressed that the most long-lasting way to keep prices from reaching cost-prohibitive territory is through “sizeable supply gains,” made possible by homes going up for sale as well as more housing starts.

The national inventory for single-family homes has fallen fairly consistently through much of 2015, with occasional upticks in groundbreakings detailed by the Commerce Department’s monthly

“The inventory rate of for-sale residences is 4.8 months.”

reports. At the end of October, there were 2.1 million existing homes available for purchase, according to NAR’s figures. That’s down more than 2 percent from September and by nearly 5 percent from October 2014 when there were 2.2 million. At the present sales pace, it would take approximately five months for the U.S.’ supply of residential homes to be exhausted.

While high asking prices may prevent some individuals from homeownership, mortgage credit availability has steadily risen, suggesting that it’s easier for prospective buyers to obtain more than a simple mortgage estimate. In October, the Mortgage Bankers Association’s Mortgage Credit Availability Index reached 128.4, up 1.5 percent from the previous month. The higher the MCAI rises, the less restrictive credit standards tend to be.

Mike Fratantoni, MBA’s chief economist, said that the MCAI rose in October because new conforming loan programs became available, which are known for having lower down payment requirements.