New Home Sales Rise
Last month, Americans bought new homes at the fastest pace in more than two years. New home sales increased 7.6 percent in May compared to the previous month, according to the Commerce Department. That’s an annual rate of 369,000 homes when adjusted seasonally.
Although the numbers bode well for the industry, that’s still way short of the 700,000 mark, which economists consider to be the sign of a healthy market. But it looks like we are inching our way up. Any gain is good news during tough times.
The latest increase in sales shows that we continue to take baby steps toward recovery despite a weak job market. It also shows that falling prices and record low mortgage rates have helped lure in buyers even in very difficult times.
The rise in demand for new homes is boosting builder confidence. Builders are steadily reporting numbers that show that demand is on the rise. Prices are already stabilizing in some markets, with sellers receiving multiple offers on a single home. Although recovery seems more local now, the hope is that the rest of the nation will catch up soon.
Lennar Corp. Reports Rising Orders
Miami-based builder Lennar Corp. said new orders rose for the fifth straight quarter, a sign that the market is stabilizing and homebuyers are finally lining up to take advantage of low interest rates.
“They do not want to miss this moment in time,” Lennar chief executive officer Stuart Miller said, according to Reuters. “There’s this feeling of not wanting to miss the boat.”
Orders skyrocketed 40 percent to 4,481 homes, the third largest builder reported. Higher prices, reduced incentives and better pricing helped the company financially, Reuters reported. But, strict lending practices continue to act as a speed bump for the company.
“Consumers recognize the mortgage approval process is extremely difficult and very conservative, and it’s difficult to get approved,” Miller said. “Demand is constrained by the mortgage qualification process.”
Low Mortgage Rates Continue to Aid Recovery
The housing market has bottomed out, and low mortgage rates have helped end a further downward slide, said Federal Reserve Bank of Dallas president Richard Fisher.
“I do think the housing market has bottomed out,” Fisher said, according to Bloomberg. The improvement has been “assisted by these low mortgage rates that we’ve had.”
As we said earlier, in May, Americans bought new homes at the fastest rate in two years. Signed agreements to buy previously occupied homes also increased, surpassing analysts’ expectations. Pending home sales jumped 5.9 percent to 101.1. The numbers may continue improving if interest rates hover at the bottom along with home prices despite high unemployment numbers and strict lending practices, Bloomberg said.
Would a Decrease in Consumer Debt Help the Housing Market?
In these trying times, American families have worked hard to reduce debt, according to recent reports from the Federal Reserve and other organizations.
According to The Fed’s survey the proportion of families carrying a credit card balance fell to 39.4 percent in 2010 from 46.1 percent in 2007. Many households have saved, paid off their debts, and accumulated disposable income to spend on large buys, according to a report by investors.com.
All this should help the housing market, which already seems to have bottomed out and started its recovery process. But does low debt mean more money to buy homes? It’s not that simple. The average American’s net worth – tied to the value of assets such as homes and bank accounts – dropped from $126,400 in 2007 to $77,300 in 2010. According to the report, the decline in asset reflects plummeting home prices. That might scare away buyers, who probably have money for a down payment but are unsure about the market.
The silver lining is the net worth of American families is again on the rise. According to a separate survey, total family net worth jumped 28 percent when compared to the recession low. Hopefully, that trend will continue into the future.