Homeowners Yet to Benefit from the New Reduced Mortgage Rates

Data revealed by the Mortgage Bankers Association has shown that there has been a considerable 11 percent drop in mortgage applications for new homes. In their analysis, they took stock of the period between last year and November 2018.

In light of the new revelation, many MBA economists are of the opinion that sales of newly built homes in November actually declined by a massive 5% per annum. Surprisingly, the drop happened even after there was a considerable decline in mortgage rates all through November. If anything, analysts believe that the new showing points to the markedly weak housing market in the country.

The U.S. census in December is expected to reveal more about the current situation in the housing market.

The Mortgage News Daily showed that on average, the fixed mortgage rates started at 5.05% in early November before taking a nosedive as the month progressed to a lowly 4.86% by November 30.

According to Joel Kan, the associate vice president of industry forecasting and economics at MBA, there’s a great affordability challenge which has continually held back the industry. All this despite the fact that the job market is quite strong and there’s been a considerable drop in mortgage rates.

Kan shared that the volatile stock market has not done much to help their cause. He divulged that the situation has created some economic uncertainty which has negatively impacted November home sales.

Silver Lining

In review, homebuilders’ stocks have been the silver lining in the relatively weak market recently. Analysts believe that the reason for this showing is thanks to the drop in mortgage interest rates. Even so, they are still considerably low compared to a year ago.

Some of the biggest homebuilders in the nation have come to the fore in reporting diminished buyer demand. On the other hand, a faction of homebuilders believes that the real issue at hand is affordability.

Both their takes on the topic are agreeable especially when you recall that despite the mortgage rate drop in November, the current figure is still higher than last years. Analysts believe that the rate will keep rising going into 2019.

The current situation is quite displeasing and is regarded as the lowest point in the industry over the last 2 years.

As per the National Association of Home Builders, homebuilders are quite crestfallen at present. Robert Dietz, the NAHB’s chief economist, divulged that the main issues today like shortage of labor and steep regulatory costs are the phenomenon that have gradually developed over the years. He explained that while home price growth actually allowed for the increment in construction cost, increasing mortgage interest rates over the last couple of months plus pricing run-up has contributed to the stalling of housing demand.

Over the last 6 months, home price gains have eased a bit. The situation now shows that there’s consumer fear over the best time to buy. Some believe that making investments now is not wise. There’s also a great fear that going forward, home prices are continually going to depreciate in value. In essence, buyers are wary about the odds of losing money.

Held Back

A report by Capital Economics has shown that the three main things holding back housing activities are: tight inventories, a slow economy, and reduced house price markers.

In December, data shared by the National Association of Home Builders (NAHB) indicated that homebuilder sentiment took a hit by an incredible 4 points. At present, the Wells Fargo Housing Market Index shows that the reading is now 56 points.

The current status shows that this is the lowest reading recorded since way back in May 2015. The figure is quite small especially when you take into account that December 2017’s level was an incredible 74.

Mortgage rates jumped at the start of 2017 and then again in September to the highest level in eight years

November’s 8-point drop is believed to the instigator of the current situation. However, it is pertinent to remember that any reading above 50 is regarded by industry insiders as a positive sentiment.

Randy Noel, the NAHB Chairman, who also happens to be a homebuilder in LaPlace, Louisiana, mentioned that so far, all they hear are stories from fellow builders about consumer demand. Whether the story is true or not, remains to be seen. The belief among many is that customers are hesitant to buy because of the sky-rocketing home costs.

Compared to existing homes, newly built homes are considerably different in that they have a price premium. Because of this, they are more sensitive to modifications in affordability.