Home Sales Surge: Largest Increase in a Year

In November 2023, the Potential Home Sales Model by First American Data & Analytics showcased encouraging trends. Potential existing home sales reached a seasonally adjusted annualized rate (SAAR) of 5.30 million, marking a notable 1.3% month-over-month increase. This surge reflects an impressive 52.1% rise from the market’s low point in February 1993. The market potential for existing home sales grew by 1.5% compared to the previous year, resulting in an 80,000 (SAAR) sales gain. Presently, potential existing home sales remain 1,486,400 (SAAR), or 21.9%, below the peak recorded in April 2006. Despite the historically slow pace of existing home sales, the 1.3% increase in November positively responds to declining mortgage rates, fostering cautious optimism in the industry.

Mark Fleming, Chief Economist at First American, underscores the potential impact of declining mortgage rates on existing home sales. Recognizing historical lows in October, he emphasizes the model’s 1.3% growth in November, the highest monthly increase since December 2022. Fleming poses a crucial question about whether the decline in mortgage rates will drive substantial growth in existing home sales. However, he acknowledges that most existing homeowners are rate-locked, even with rates approaching 6%. He suggests that the journey to a balanced market will be gradual rather than abrupt, aiming for a scenario that is “not too hot, not too cold, but just right.”

Job Growth to Drive Long-Term Housing Demand

Chief Economist Lawrence Yun of the National Association of Realtors (NAR) predicts a rebound in home sales in 2024 following two consecutive years of double-digit declines, citing lower mortgage rates as the driving factor. While 2023 is anticipated to mark the worst year for existing home sales since 2008 or 1995, new home sales experienced a strong performance, ranking as the third or fourth-best year since 2008. Yun expects a shift in monetary policy, with the Federal Reserve planning three 25-basis point rate cuts in 2024, signaling a new phase.

Yun forecasts a decline in mortgage rates to the mid-6% range, averaging 6.3% in 2024, with factors such as easing rent-price growth and a narrowing spread between the 10-year Treasury yield and mortgage rates contributing to this trend. Job growth is identified as the critical determinant for long-term housing demand, while mortgage rate changes are expected to influence short-term demand. Yun identifies markets with growth potential, including Austin, Dallas, Houston, and Nashville in the South, and Durham, Chapel Hill, and Pennsylvania cities in the East. Despite anticipated improvements, concerns arise about affordability for homebuyers in 2024, exacerbated by potential shifts in buyer representation costs following legal developments in Missouri, potentially excluding first-time homebuyers with limited capital.

MBA Reports 21.8% Surge in November New Home Purchase Mortgage Applications

In November 2023, the Mortgage Bankers Association (MBA) reported a notable increase of 21.8% in mortgage applications for new home purchases compared to the same period last year. However, compared to October 2023, there was a 12% decline in applications without adjusting for seasonal patterns. Mike Fratantoni, MBA’s SVP and Chief Economist, highlighted the strength in lending for new construction amid an otherwise sluggish year for purchase originations. He noted the sustained demand for new homes, mainly fueled by first-time buyers using FHA loans, despite the overall purchase market lagging about 20% behind last year’s pace. Fratantoni anticipates that lower mortgage rates will continue to support robust demand as the spring homebuying season approaches.

MBA estimates that new single-family home sales, a leading indicator of the U.S. Census Bureau’s New Residential Sales report ran at a seasonally adjusted annual rate of 677,000 units in November 2023. This reflects a 5.3% decrease from the October pace. The breakdown of loan types for new home applications shows that conventional loans comprised 62.8%, FHA loans 27.1%, RHS/USDA loans 0.3%, and VA loans 9.7%. The average loan size for new homes slightly decreased, from $390,225 in October to $390,049 in November.

Source:

Vaimberg, Ron. “Weekly Newsletter – January 6, 2023.” Ron Vaimberg International, Ron Vaimberg, 6 Jan. 2023, https://rvionline.thinkific.com/courses/take/rvi-weekly-newsletter/texts/41523497-weekly-newsletter-january-6-2023.