New Home Sales on a High

 Temperatures were not the only thing on the rise this summer. According to CNN, New home sales rose in July from the month before, beating estimates and reaching a 17-month high, as buyers continue to look to new construction as an option in the face of a historically low supply of existing homes. 

The US Department of Housing and Urban Development and the Census Bureau reported that sales for new homes were up 31.5% from the summer of 2022. Newly constructed home sales rose to 4.4% to a seasonally adjusted annual rate of 714,000.

Many are concerned that this might change due to the rise in home prices, and the rise in mortgage rates. In fact, existing home sales are down from Summer 2022. Those in the industry are not as concerned with new home sales.

“Household formation continues to outpace new construction which has continued to bolster the market despite the multitude of headwinds,” says Kelly Mangold of RCLCO Real Estate Consulting.

“With the median price of a new home running close to that of an existing home, many homebuyers are opting for the benefits of fresh floor plans, better energy efficiency and a warranty,” said George Ratiu, chief economist at Keeping Current Matters, a real estate market insights company. “Builders are bringing a growing number of new single-family homes to market, focused on meeting the needs of an affordability-constrained consumer.”

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How Much of Your Net Worth Should Be in Real Estate?

 Ever since the first settlers came to America, real estate has been a worthy investment. Even with the volatile economy we currently are living in, real estate is still a pretty safe way to invest and grow your net worth. The home prices are high currently, but those that have recently invested in a new home will still see a good return. There are some homeowners who have too little or too much of their net worth invested in real estate which can result in problems. So what is the magic number when it comes to investing your net worth into real estate?

According to professionals in the industry, you should use anywhere from 25% to 40% of your net worth for real estate. This will include your home that you live in and other real estate investments. By doing this, it allows you to capitalize on the advantages of real estate ownership while giving you plenty of flexibility to pursue other avenues of investment and wealth development. This is a broad percentage range but your age, risk tolerance and other various factors will play a part in determining how much you should go with.

Investors will tell you that adding real estate to a portfolio is very beneficial. You can enjoy predictable cash flow, excellent returns, tax advantages and diversification. Remember there are several pros to real estate investments. Real estate can appreciate over time, bring you tax incentives, provide a large chunk of income, allows you to use leverage and build equity, and allows the investor to have direct control over the investment.

Investors will need to know first hand how to calculate how much real estate should go into their net worth. This can be calculated with a net worth formula which is net worth = total assets – total liabilities. There are net worth calculators online that will provide you with the figure. An investor should always know the information needed to calculate.

To make it easier, an investor will need to divide their assets into four categories. These include tangible assets (furniture, cars, collectables, physical properties, etc.), equity assets (ownership in stocks, investments in partnerships and businesses, retirement accounts, life insurance cash value, etc.), cash and cash equivalents (cash, money market accounts, checking accounts, savings, etc.) and fixed income (bonds, etc.).

Once you have this total, then you will need to add up your liabilities. This can be divided into two categories which are secured debts (car loans, home equity loans, mortgages, etc.) and unsecured debts (credit card debt, student loans, personal loans, taxes, medical bills, etc.). Once you have your total for your assets and liabilities you will apply the net worth formula.

Remember, it is very important to understand how your net worth is calculated and what information you will need to do this. If you are in the market for a home or a real estate investment, talk to a local realtor who can help you with a real estate transaction.

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Homes Sales Dropped For The 9th Consecutive Month October 2022

 Among these sale price drops seen in the past nine months, rising mortgage rates and high prices are two of the catalysts of the current situation. Buyers are getting fed up with this and are backing out of the housing market.

The National Association of Realtors reported that sales that include single-family homes, townhomes, condominiums and co-ops are down 28.4% from October 2021. Every region in the country saw a decline. This is the longest decline seen in home sales since 1999.

Home sales have been the weakest we have seen since May 2020 during the height of the pandemic. Current homeowners are not wanting to sell because of the uncertainty in the market. This is keeping the inventory low which is not helpful.

October reported 1.22 million units for sale. This is down from the month before and a year before. Currently, it would take only 3.3 months to get through what is currently on the market. A balanced market has around 4 to 6 months of supply. “Inventory levels are still tight, which is why some homes for sale are still receiving multiple offers,” Lawrence Yun, NAR’s chief economist added.

Yun also reports that household incomes have not risen enough to keep up with home prices. “First-time buyers are really struggling with high prices, the high bar to get into the market and high mortgage rates,” Yun says.

“This is why more new home construction is needed, as well as more rehabilitation of disused buildings into residential units,” said Yun, noting that while construction of apartment buildings remains robust, single-family starts are below one year ago and well below historical averages.

“In the meantime, mortgage rates are falling from the peak levels of last month and the gate is opening for more homebuyers to qualify for a mortgage.”

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A Drop in Refinancing Hurt Mortgage Rates in May

 According to Black Knight's monthly market monitor, May saw a 5% drop in rate lock volume due to a slow month for refinancing. The drop in refinance activity fell for both rate term refis and cash-outs. This is not good news for lenders because they rely on the purchase market for origination volumes.

Black Knight's monthly market monitor report watches the trends in the homeownership life cycle. It is the leader in the industry with its own software, data and analytics program.  The combined insight of the Black Knight HPI and Collateral Analytics’ home price and real estate data provides one of the most complete, accurate and timely measures of home prices available, covering 95% of U.S. residential properties down to the ZIP-code level. In addition, the company maintains one of the most robust public property records databases available, covering 99.9% of the U.S. population and households from more than 3,100 counties.

The report revealed that slower monthly mortgage originations caused a dip
of 4.8% in rate locks. Mortgage rates are down this month 7 basis points from April which came in at 5.34%. There was a 23.6% decline in rate/term refinance lending activity from April and an 89.9% dip year over year. As for cash-out refinance locks they were down 11.9% from April and 42.2% from the same time last year.

“We’ve seen rate/term refinance activity essentially evaporate and cash-out activity is now suffering as well,” said Scott Happ, president of Optimal Blue, a division of Black Knight. “While there is volume pressure across the board due to rising rates, purchase volumes are holding up the best and are now driving 82% of all origination activity.”

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Home Prices Soaring the Fastest Seen In Over Six Years

 Cnbc.com reports that U.S. home prices rose the most the country has seen in more than six years October 2020. The price jump is stemmed from a pandemic-fueled buying rush that drives the number of available properties for sale to record lows.

The S&P CoreLogic Case-Shiller 20-city home price index showed that home prices jumped 7.9% in October 2020 from the same time in October 2019. The strong demand for housing and limited housing inventory caused the largest annual increase seen since June 2014.

As has been the case for the last 10 months the pandemic caused a great deal of Americans to work from home. People are not going out to eat, or socializing outside of the home. This has put more value on the size and design of the home. Many Americans are now looking for bigger rooms or more rooms such as a home office or space to workout.

The 19 cities that were mentioned in the report all had larger year-over-year price spikes in October 2020. Phoenix had the largest gain by 12.7% in October, this was the 17th straight month of gains for the city.

“The data from the last several months are consistent with the view that COVID has encouraged potential buyers to move from urban apartments to suburban homes,” said Craig Lazzara, Managing Director at S&P Dow Jones Indices.

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Reform of the Housing Finance System a Top Priority

The National Association of Home Builders (NAHB) created a white paper in 2012 called “A Comprehensive Framework for Housing Finance System Reform” which recommended utilizing both public and private sources of housing capital to keep the current federal government housing agencies. Recently NAHB has amended the 2012 white paper regarding the advancing of housing finance so there will be a secure and strong national financial market, job market and economic growth.

This is important when it comes to the housing market.  Without housing finance there would be no reason for new

developments and construction of new housing around the country. The home building industry is dependent on the housing finance system. One of the biggest hindrances mentioned in the white paper are the credit challenges home builders and home buyers are still facing that stemmed from the Great Recession.

The white paper clearly defines the importance of federal government support within the new system but limits the extent of the federal government’s duties. Conventional mortgages will be supported by private capital and a privately funded, mortgage-backed insurance fund with a federal government backstop to ensure it will be covered in case of a cataclysmic occurrence such as what happened in 2008.  Now the housing finance will be more private-sector with Fannie Mae and Freddie Mac transforming into a private-sector oriented system.

NAHB has challenged Congress and federal regulators to redefine housing finance reform because every American should have a decent place to live as stated in The Housing Act of 1949. 

Homeownership is one of the best financial decisions one could make and proves to be a stable investment. It provides solid jobs for Americans through home building and manufacturing products used in construction.  Hopefully these steps and challenges will reduce the risk that America will be hit by another Great Recession.

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