February 2011 is going down in history as a complete contradiction of terms within the housing market. Within the year's shortest month, mortgage contract signings were up as new home sales dropped to the lowest levels since 1963. The dichotomy has shown how fragile the nations housing market is and that a complete housing recovery may take years to complete.
Historically, signed mortgage commitments were considered to be a good indicator of the health and potential of the housing market. However, information provided by the National Association of Realtors has shown that many of the contracts were canceled prior to being completely processed due to low appraisal values on the properties in question. The activity indicates the problems that still exist in the housing market.
New Home Sales Plummet
New home construction has also been a vital component to the health of the nation's real estate market and subsequently, the economy at large. According to government statistics, home sales transactions are retracting to the lowest levels since the data has been kept. The current rate of home sales is estimated to be half of what occurred in 1963, despite the nation's population growing by 120 million since the swinging 60s.
Historically, new home sales accounted for 15 percent of all homes purchased on an annual basis. February statistics have shown a retraction to 5 percent. Economists have stated that new home sales are around 700,000 annually in a healthy real estate market. The declines recorded in February have put the nation on track for approximately 250,000 total sales by the years end.
The health of the real estate industry is gauged by a mix of home construction, selling of new homes and the resale of residential properties. If one sector is down, all fragments can be negatively impacted. The National Association of Home Builders has reported (2008) that new home construction generates:
- 3.05 jobs and $89,216 in taxes for each new single family home constructed
- 1.16 jobs and $33,494 in taxes for each new multi family rental unit constructed
- 1.11 jobs and $30,217 in taxes (for remodeling projects up to $100,000)
Why New Home Construction is Down
The real estate market is flooded with an excess of properties for resale, courtesy of the 2010's record number of foreclosures. The real estate owned properties have been highly discounted in order to entice buyers and move them off the ledger books of lenders-turned-owners. Current home buyers are opting to buy those homes because of the bargains and that competition has driven the median price of a new home down to the lowest levels since 2003, to $202,000 (HuffingtonPost.com).
New homes generally cost 30 percent more than previously owned properties for sale. Those price discrepancies have caused new home construction to plummet as consumers are looking for housing discounts. Economists believe that this retraction can have long lasting negative consequences as less new home construction now will mean less available inventory (and higher home prices) in the future.
Mortgage Contracts Up
Despite the negative news coming from the new home industry, mortgage contract signings were reportedly up in February. The National Association of Realtors has noted an uptick of 2.1 percent in mortgage agreements. That information is from the associations pending home sales index and while February's readings were at 90.8, it is substantially less than the healthy level of 100 or above.
Although there is no concrete information explaining why more mortgage agreements have been signed despite the retraction in home sales, industry insiders hypothesize that consumers are trying to lock in home loans at low interest rates. Mortgage Marvel, the industry's premiere mortgage rates origination tool, predicted the demise of 2010s historically low mortgage rates and have since noted that rates have been trending upward since the beginning of the year. Consumers may be scrambling to lock in low rates and buy a home now in fear of missing out on the
