September 22, 2014
Housing prices remain elevated amid current supply-demand fundamentals. This, along with tighter credit, may be keeping new buyers out of the market and slowing new home sales.
The median price of new homes has increased 13.6 percent since July 2012, according to The Wall Street Journal. However, wages have grown at an annual rate of 2 percent. In addition, tight standards for mortgage loan origination are contributing to the difficulties that keep some would-be homeowners out of the market.
New-home sales plunge
Amid these developments, new-home sales plunged to a four-month low in July, according to government figures. These sales dropped to a seasonally-adjusted rate of 412,000 in July, 2.4 percent below those of the prior month, according to data provided by both the U.S. Census Bureau and the Department of Housing and Urban Development.
July's figure for new-home sales lagged even the lowest estimate of economists contributing to a Bloomberg poll. The survey participants offered predictions ranging between 414,000 and 470,000, and a median forecast of 430,000. The housing market has struggled thus far in 2014, as high prices, tepid wage growth and challenging credit conditions all combine to limit the activity of would-be homebuyers.
"It's a little bit disappointing," Thomas Simons, who works in New York as an economist at Jefferies LLC, told the news source. During the past two years, Bloomberg data reveal he has been the most-accurate forecaster of new-home sales. "The new-home sales data have no traction whatsoever and don't seem to be gaining at all."
This situation is a far cry from the housing market that existed before the latest recession, as new homes sold at a rate approaching 1 million per year before the downturn began in 2007, according to The Wall Street Journal. Some economists have predicted that new-home sales will probably not recover to this level in the near future.
Mortgage closing time reaches 3-year low, says Ellie Mae
While many are having a hard time obtaining mortgages, those who succeeded saw their loans close in an average of 37 days in July, according to Ellie Mae's July Origination Insight Report. This was the lowest number of days since Ellie Mae started calculating the measure in August 2011. Reduced volume is certainly helping fuel this situation, Jonathan Corr, chief operating officer of Ellie Mae, told National Mortgage News.
As the average time between application and funding fell to record lows July, the closing rate reached 57.7 percent during the period, 3 percent lower than in June, according to American Banker. In July, 67 percent of closed loans, the greatest fraction in almost three years, came from the purchase market.
Many optimistic about housing's future
Even amid the current challenges, many are optimistic about housing's future prospects. Sales of residential properties in general will speed up as sales of distressed real estate become an increasingly smaller percentage of total transactions, Robert Niblock, chairman and CEO of Lowe's Cos., told Bloomberg.
"Signals from the housing market appear mixed," he stated during an earnings call on Aug. 20, according to the news source. "We believe home-improvement spending will continue to progress in tandem with strengthening job and income growth."
Shea Homes, the largest private builder of new homes in America, enjoyed a year-over-year sales increase of more than 10 percent in July, CEO Bert Selva told The Wall Street Journal. Even though many are upbeat about the future of housing, the market will still have challenges to overcome, as Brad Hunter, chief economist for housing-research firm Metrostudy, said that the recent price increases are certainly impacting demand.