Thanks to interest rates, home sales show recovery is here already
According to figures released by the Mortgage Bankers Association, mortgage applications are up nine percent over a year ago. Although interest rates are down, and normally would presage a boom in home refinancing, new home sales lead the charge.
The new home sales figures highlight what many think will be just a temporary, albeit severe, downturn in the economy.
New home sales rose one percent for last month, while economists were expecting sales to drop 22 percent in April. Builders were aggressive with pricing to stir up demand. New home prices dropped 8.5 percent to $309,900.
“The April data for new home sales show the potential for housing to lead any recovery for the overall economy,” said Dean Mon, chairman of the National Association of Homebuilders. “Because the housing industry entered this downturn underbuilt, there exists considerable pent-up housing demand on the sidelines.”
Refinancing is still strong, up over nearly 200 percent year-over-year, thanks to historically, if-not record lows on mortgage rates.
Interest rates on a conforming 30-year mortgage are 3.42 percent, up 0.01 point over last week, but down over one percent from last year.
But not all is pretty.
Delinquent mortgages are up to 8.36 percent of all mortgages, a smaller increase since the start of the pandemic, but still an increase. The balance of federally guaranteed loans that are delinquent is 11.6 percent.
However, the disparity between conventional and federal loans is not unexpected. Under the CARES Act, homeowners with a federally-backed loan can suspend payments up to one year because of the coronavirus.
Unlike 2008, where housing was a drag on the overall economy, the temporary nature of the pandemic emergency may help housing become a leader in the post-corona world.
“The coronavirus pandemic has generated any number of nasty surprises over the past few months, but the unexpected strength in April new home sales may be the first pleasant surprise yet — and the clearest indicator so far that housing, so unlike the last time around, will be a source of relative strength during this downturn,” said Matthew Speakman, an economist at Zillow.
Housing is a big component of the country’s GDP, contributing between 15-18 percent of GDP according to the National Association of Homebuilders.
“This could be a sign that housing will be one component of GDP that rebounds faster over the summer months, helped by lower interest rates,” CIBC Capital Markets’ senior economist Andrew Grantham and economist Katherine Judge said in a research note according to MarketWatch.
Hopefully home sales remain strong and the economy is ready to boom again.
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