A handful of housing data this week basically declared who is winning in the current housing market.
It’s certainly not home buyers, choosing from too few choices to buy at still-high prices and high mortgage rates. They are not sellers, many of whom are not even in the game. Neither are those who are not ahead, as they will eventually become buyers.
The winner – or the winners? Home builders.
An imbalance between supply and demand – caused by falling and then rising the path taken by mortgage rates since the start of the pandemic – has been a boon for builders.
And they know it too.
Builder confidence finally moved into positive territory this month, the first time in 11 months, according to the National Association of Home Builders. Expectations for current sales and sales six months from now were also encouraging.
“There is so little inventory available on the resale side that it drives buyers to pay the premium for new versus resale because there just isn’t much that is desirable to them. “said KB Home Chairman, President and CEO Jeffrey. Mezger said this week on the automaker’s investor call: “So we’re pretty happy.”
KB Home (KBH) was the latest builder to report better-than-expected quarterly results and more upbeat forecasts, following the same path as DR Horton (DHI), PulteGroup (PHM), Toll Brothers (TOL) and Lennar Corp. (LEN )
This enthusiasm translated into more shovelfuls.
Single-family housing starts in May jumped 18.5% from April to a seasonally adjusted annual rate of 997,000, according to government data released this week. Permits for single-detached homes reached a seasonally adjusted annual rate of 897,000 units, up 4.8% from April.
“We haven’t seen this level in the 10 years before the pandemic,” Lawrence Yun, chief economist for the National Association of Realtors, told Yahoo Finance Live (video above). . And there is a financial incentive to produce more.
These homes are badly needed, in large part because the current owners hold favorable mortgages. Why would you want to sell only to turn around and buy another more expensive home with twice the mortgage rate?
You wouldn’t.
The numbers tell the story: Virtually all homeowners with a mortgage have a current mortgage rate below 6%, Redfin reported last week. About 4 in 5 mortgage homeowners have an interest rate below 5%, and nearly a quarter have a rate below 3%, likely when they refinanced during the pandemic when rates hit historic lows .
So while the number of previously owned homes on the market increased in May to 1.08 million units, this remains below the pre-pandemic norm of 1.9 million homes, according to the NAR statement. on sales of existing homes. The total was the lowest number on record for the month of May.
Redfin, according to new data, also found that the number of homes for sale in the United States hit a new low in May.
“The existing tight inventory environment has been a tailwind for new home sales,” Morgan Stanley strategist James Egan wrote in a note to clients on Tuesday. “In fact, new home sales have accounted for the largest share of the first quarter total for the year since 2006.”
In more good news for homebuilders: Egan has revised its forecast for home prices, expecting no growth for the year compared to its earlier expectation of a 4% decline.
But there is hope for potential buyers of existing homes: Mortgage rates are showing signs of retreating.
Freddie Mac (FHL.SG) said rates have softened over the past three weeks – to 6.67%. And this week, Realtor.com revised its outlook for mortgage rates, predicting that the average rate on the 30-year fixed mortgage will average 6.4% throughout the year and soar to 6.1%. by the end of the year. This is lower than its previous estimate of 7.4% throughout the year and 7.1% at the end of the year.
So, would 6% be enough to revive the resale market?
“There’s no magic number because it’s probably different for every owner,” First American Financial Corp. chief economist Mark Fleming told Yahoo Finance. But “it is likely that rates would need to be much closer to 5% than 7% to reduce the financial penalty of rate foreclosure for most homeowners.”
Dani Romero is a reporter for Yahoo Finance. Follow her on Twitter @daniromerotv. Gabriella Cruz-Martinez is a personal finance reporter at Yahoo Finance. Follow her on Twitter @__gabriellacruz. Janna Herron is personal finance editor for Yahoo Finance. Follow her on Twitter @JannaHerron.
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