According to the U.S. Census Bureau, in November new home sales increased to the highest level in two years. For the month, new homes sales climbed 4.4 percent to 377,000. Year-over-year sales rose 15%. The last time the annual rate of new home sales reached this level occurred in April 2010. At that time, the temporary tax credit for home buyers was in effect.
With existing home sales and home construction also showing improvement, the current data provide multiple signals that the housing market has entered into recovery mode. In addition, historic low mortgage interest rates, fewer foreclosures on the market, and a declining unemployment rate, has increased demand among home buyers.
Subsequently, the oversupply of housing has fallen significantly and led to appreciating home values across the country.
Tighter New Homes Supply
The inventory of new homes is especially tight. In November, this segment of the market had a 4.7 month supply of available homes – the same level of supply four out of the past six months. The last time the new home supply dropped to such a low level was around the peak of the last real estate bubble-- back in October 2005.
The tightened supply of new homes amidst higher demand has caused new home prices to increase 14.9 percent compare to prices in November of 2011. What makes the latest data on new homes sales so attractive is the fact that the report was strong in a month when sales are usually at a seasonal.
New homes sales and construction activities have regained its traditional role of fueling economic growth , especially with the falloff in capital investment from businesses and consumers concerns over the fiscal cliff issue remains in a stalemate between Congress and the White House, said Wells Fargo senior economist Securities Anika Khan.
Positive Effect on the Nation’s Economy
Historically, new home sales activities have more of an effect on the U.S. economy than existing home sales. New home sale activities lead to jobs in construction and increase purchases of appliances, furniture, cabinetry, and other goods. As the median price of new homes continue to increase, it bodes well for the future of existing home sales and new construction.
As homeowners gain more equity, they have the motivation to sell their homes and use the proceeds to buy larger homes. The improved housing market also entices potential home buyers who have been sitting on the fence to jump into the market and buy homes.
Government May Expand Mortgage Refinancing Program
Homeowners who have private mortgages, which currently do not qualify for mortgage refinancing under the Home Affordable Refinance Program (HARP), and borrowers with underwater mortgage, may receive help from Uncle Sam.
The proposed program would require Congress to temporarily modification of the charters of Fannie Mae and Freddie Mac, which would allow both government-sponsored enterprises (GSEs) to accept the transfer of these risky loans to their portfolios.
The new program would require borrowers who refinance to pay higher mortgage interest rates to balance the GSEs insuring the underwater mortgages and risking borrower defaults. According to CoreLogic, 10.8 million homeowners owe more on their home mortgage balance than the fair market value of their homes.