Pending home sales rose in July as mortgage rates hit new lows and mortgage applications increased, showing that the U.S. housing market is a bargain now for those who can take advantage of it.
The National Association of Realtors (NAR) reported Thursday, September 2 that its pending home sales index for contracts signed in July rose 5.2% to 79.4 from a downwardly revised June reading of 75.5, the lowest on record. That level remains 19.1% below July 2009, when it stood at 98.1. A 100 reading marks the average level of sales activity in 2001, when the index began.
July’s modest rise in pending home sales followed a sharp drop in the months immediately after expiration of the home buyer tax credit. For the rest of 2010, a long recovery process is expected for the overall U.S. housing market–which is good news for those who can afford to buy homes now or refinance their mortgages.
“Home sales will remain soft in the months ahead, but improved affordability conditions should help with a recovery,” said NAR chief economist Lawrence Yun. “But the recovery looks to be a long process. Home buyers over the past year got a great deal, and buyers for the balance of this year have an edge over sellers. For those who bought at or near the peak several years ago, particularly in markets experiencing big bubbles, it may take over a decade to fully recover lost equity.”
Refinancings Hit 15-Month High
On September 1, the Mortgage Bankers Association (MBA) reported an increase in mortgage applications as interest rates hit a new low. The MBA weekly mortgage applications survey for the week ended August 27 rose 2.7%, seasonally adjusted, over the previous week.
Strikingly, the refinance index increased 2.8% from the previous week and now stands at its highest level since May 2009.
“Refinancing activity picked up again last week, reaching new 15-month highs, as borrowers took advantage of even lower mortgage rates,” said Michael Fratantoni, MBA’s vice president of research and economics, in a statement. “The drop in
mortgage rates was in line with Treasury rates as the latest data continue to show weak economic growth and an exceptionally weak housing market.”
Mortgage Rates at Record Low
According to Freddie Mac data released September 2, interest rates for 30-year fixed-rate mortgages were at record lows of 4.32% with an average 0.7 point, down from the prior week when rates averaged 4.36%. The 30-year fixed-rate survey began in 1971.
A year ago at this time, the 30-year fixed rate averaged 5.08%.
In a classic case of one investor’s bad news being another’s good fortune, current economic conditions are a boon to eligible home buyers as well as owners seeking a new mortgage.
“Affordability could reach a generational high in the second half of this year because of rock-bottom mortgage interest rates, helped partly by the Federal Reserve’s very accommodative monetary policy,” said NAR economist Yun. “The loan underwriting standards are tighter, but home buyers can improve their chances of getting a loan by staying well within their budget.”
Read about pending home sales in June from the archives of InvestmentAdvisor.com.