Sales of newly built, single-family homes recorded a solid gain in May as reported by the U.S. Department of Housing and Urban Development and the U.S. Census Bureau This Week in Real Estate, while existing-home sales retracted for the fourth consecutive month, returning to the levels seen in 2019. The median existing-home price was up 14.8% in May compared to May of last year – this marks 123 consecutive months of year-over-year increases, the longest-running streak on record. So, is today’s housing market in the same predicament that it was when it contributed to the Great Recession? Many economists and analysts believe not thanks, largely, to the lending regulations that resulted from that meltdown. The average borrower FICO credit score of the 53.5 million first lien home mortgage holder is a record high 751 compared to 699 in 2010. Home prices have soared resulting in total mortgage debt in the U.S. of less than 43% of current home values, the lowest on record. That gives today’s homeowners record amounts of home equity. Mortgage delinquencies are now at a record low, with just under 3% of mortgages past due. “The mortgage market is on very historically strong footing,” said Andy Walden, vice president of enterprise research at Black Knight. Below are a few newsworthy events from the fourth week of June that influence our business:
Existing-Home Sales Fell 3.4% in May; Median Sales Price Surpasses $400,000 For The First Time. Existing-home sales retreated for the fourth consecutive month in May, according to the National Association of Realtors. “Home sales have essentially returned to the levels seen in 2019 – prior to the pandemic – after two years of gangbuster performance,” said NAR Chief Economist Lawrence Yun. “Further sales declines should be expected in the upcoming months given housing affordability challenges from the sharp rise in mortgage rates this year,” Yun added. “Nonetheless, homes priced appropriately are selling quickly and inventory levels still need to rise substantially – almost doubling – to cool home price appreciation and provide more options for home buyers.” The median existing-home price for all housing types in May was $407,600, up 14.8% from May 2021 ($355,000), as prices increased in all regions. This marks 123 consecutive months of year-over-year increases, the longest-running streak on record. Properties typically remained on the market for 16 days in May, down from 17 days in April and 17 days in May 2021. Eighty-eight percent of homes sold in May 2022 were on the market for less than a month. Existing-home sales in the West slid 5.3% compared to the month before to an annual rate of 1,080,000 in May, down 10.0% from this time last year. The median price in the West was $633,800, an increase of 13.3% from May 2021.
New Home Sales Increase in May Before Fed’s June Rate Rise. After posting four consecutive monthly declines on rising mortgage rates and worsening affordability conditions, new home sales posted a solid gain in May as some buyers rushed into the market in advance of the Federal Reserve’s June interest rate hike. Sales of newly built, single-family homes in May increased 10.7% to a 696,000 seasonally adjusted annual rate from an upwardly revised reading in April according to newly released data by the U.S. Department of Housing and Urban Development and the U.S. Census Bureau. New home sales are down 10.6 percent in 2022 on a year-to-date basis. While sales were up in May, the 696,000 annual pace was 5.9% lower than a year ago. New single-family home inventory remained elevated at a 7.7 months’ supply, up 42.6% over last year, with 444,000 available for sale. However, only 8.3% of new home inventory is completed and ready to occupy. The remaining have not started construction (25.9%) or are currently under construction. Inventory should slow in the months ahead as builder slow permit growth in response to weakening housing demand. Only 10% of new homes were priced below $300,000 in May, compared to 23% a year ago.
Here’s Why This Housing Downturn is Nothing Like The Last One. Is today’s housing market in the same predicament that it was over a decade ago, when the 2007-08 crash caused the Great Recession? The short answer is: no. America’s housing market is in far better health today. That’s thanks, in part, to new lending regulations that resulted from that meltdown. Those rules put today’s borrowers on far firmer footing. For the 53.5 million first lien home mortgages in America today, the average borrower FICO credit score is a record high 751. It was 699 in 2010. Home prices have soared, as well, due to pandemic-fueled demand over the past two years. That gives today’s homeowners record amounts of home equity. So-called tappable equity, which is the amount of cash a borrower can take out of their home while still leaving 20% equity on paper, hit a record high of $11 trillion collectively this year, according to Black Knight, a mortgage technology and data provider. That’s a 34% increase from a year ago. Total mortgage debt in the United States is now less than 43% of current home values, the lowest on record. Negative equity, which is when a borrower owes more on the loan than the home is worth, is virtually nonexistent. Mortgage delinquencies are now at a record low, with just under 3% of mortgages past due. Even with the sharp jump in delinquencies during the first year of the pandemic, there are fewer past-due mortgages than there were before the pandemic. “The mortgage market is on very historically strong footing,” said Andy Walden, vice president of enterprise research at Black Knight. “Even the millions of homeowners who availed themselves of forbearance during the pandemic have by and large been performing well since leaving their plans.” The biggest problem in the housing market now is home affordability. While inventory is starting to rise, it is still about half of pre-pandemic levels. “Rising inventory will eventually cool home price growth, but the double-digit pace has shown remarkable sticking power so far,” said Danielle Hale, chief economist at Realtor.com.
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