The Truth About NAR’s Home Sales Numbers

The National Association of Realtors (NAR) released their latest Existing Homes Sales Report last Friday. The year-over-year comparison of overall sales did not paint a pretty picture. NAR itself called the sales numbers “subdued”. Other media sources used stronger terminology.
There is no doubt that home sales were lower this February (4.60 million) than last February (4.95 million). However, a closer look at the report gives us some evidence as to why that is. Last year, of the 4.95M homes sold, 25% were distressed properties (foreclosures and short sales). This February, only 16% of sales were made up of distressed properties.

WHY IS THIS IMPORTANT?

Well, if we do the math, we can see that the annualized number of non-distressed properties sold which was revealed in the latest report (3,864,000) was actually greater than the annualized number of non-distressed properties sold that was reported last year (3,712,500). As we sell-off the ‘shadow inventory’ of distressed properties, there will be less homes from which a potential buyer can choose. That will impact sales.
As proof of this point, we can look at the months’ supply of housing inventory available for purchase. In a normal market, a six month supply would be optimum. However, we haven’t reached a six month supply once in over 18 months. This shortage of inventory is the main reason sales are down.

THE GOOD NEWS

As prices continue to rise, more and more homeowners will be freed from the shackles of negative or limited equity. This combined with an improving economy will allow homeowners to again feel confident that they can sell their homes and move on with their future plans. We are already starting to see increases in listings coming onto the market (unsold inventory is 5.3 percent above a year ago). Once housing inventory reaches normal levels (a 6 months’ supply) we will again see home sales begin to increase.

Courtesy of: Park City Real Estate - JensenandCompany.com

Buying a Home Less Expensive than Renting – by 38%! 

Trulia released their Rent vs. Buy Report last week. The report explained that homeownership remains cheaper than renting in all of the 100 largest metro areas by an average of 38%!

The other interesting findings in the report include:

• Even though prices increased sharply in many markets over the past year, low mortgage rates have kept homeownership from becoming more expensive than renting.
• Some markets might tip in favor of renting this year as prices continue to rise faster than rents and if – as most economists expect – mortgage rates rise, due both to the strengthening economy and Fed tapering.
• Nationally, rates would have to rise to 10.6% for renting to be cheaper than buying – and rates haven’t been that high since 1989.

Buying a home now makes sense. You can lock in a mortgage payment before home prices and mortgage rates rise as experts expect they will. If you rent, your housing expense will only continue to increase.

 

Buy Now Not Later!

We have often suggested that potential home buyers consider rising interest rates when thinking about the true cost of a home. Remember, cost is not determined by price alone but by price and mortgage rate. The longer a buyer waits, the higher the mortgage payment will be if rates continue to increase (as is projected by Fannie Mae, Freddie Mac, the National Association of Realtors and the Mortgage Bankers Association).

Money Magazine, in its latest issue, agreed with our analysis as they also warned their readership of the same ramification if they waited to buy a home.
Here is what they said:

"BE MINDFUL OF RATES. The average interest rate on a 30-year fixed loan is predicted to climb from the current 4.4% to 5.3% by the 2015 spring buying season, according to Freddie Mac. For a $250,000 loan, that means that a borrower who waits would pay $136 more per month and an additional $49,090 in interest over the life of the loan. Will you need a big loan? Better to act soon before rates tick up."

And the monthly increase Money mentioned did not take into consideration that prices are also projected to increase over the next year. Here is what the additional cost would be if prices rise by the 4.5% projected by the latest Home Price Expectation Survey and interest rates go to 5.3%.