New-Home Sales Decline in February 2010
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RISMEDIA, March 26, 2010—Sales of newly built, single-family homes fell 2.2% in February 2010 to a seasonally adjusted annual rate of 308,000 units, the Commerce Department recently reported. While this figure marked a new record low for overall sales activity, only one region (the South) hit its own record low.
“The very slow pace of new-home sales in February was partly due to unusually poor weather conditions, but was also tied to consumers’ ongoing concerns about the poor job market and sluggish economy,” said Bob Jones, chairman of the National Association of Home Builders (NAHB) and a home builder from Bloomfield Hills, Mich.
“Unusually bad weather certainly played a role in the large regional declines depicted in today’s new-home sales report,” agreed NAHB Chief Economist David Crowe. “In addition, many potential buyers remained nervous about their job security and their ability to qualify for a mortgage in light of tight underwriting standards. That said, we are still expecting to see some improvement in consumer demand as the deadline for taking advantage of home buyer tax credits nears. Going forward, other factors such as pent-up demand, new household formations among echo-boomers and excellent affordability conditions will support a 20% gain in new-home sales this year compared to 2009.”
While nationwide home sales fell to a record low in February, a 20.8% gain was registered in the West, with the storm-battered Northeast, Midwest and South posting respective 20%, 18% and 4.6% declines.
The nationwide inventory of new homes on the market rose by a marginal 1.3% in February, to 236,000 units. Due to the slower sales pace, the month’s supply of new homes for sale rose from 8.9 in January to 9.2 in February.
ONLINE HOME SEARCHES
More and more home buyers each day are using the internet to search for properties. The Realtors Multiple Listing Service (MLS) is the main data base for all the online companies such as Realtor.com, Point2, Trulia, Yahoo and others. Some online companies do not give you the complete inventory unless the Real Estate agent pays to join. So as a home buyer it would be to your best interest to contact your local Realtor to see the complete list of homes.
"2008 National Association of Realtors Profile of Home Buyers and Sellers" study, which reports:
- 33 percent started their home search by looking online for properties for sale (38 percent of repeat buyers, 27 percent of first-time buyers).
- 87 percent claim that they used the Internet as an information source (86 percent of repeat buyers, 89 percent of first-time buyers).
- 81 percent found the Internet as a useful source of information.
RISMEDIA, July 15, 2009-The weekly average rate borrowers were quoted on Zillow Mortgage Marketplace for 30-year fixed mortgages decreased last week to 5.26 percent, down from 5.40 percent the week prior, according to the Zillow Mortgage Rate Monitor, compiled by leading real estate Web site Zillow.com . Meanwhile, rates for 15-year fixed mortgages fell to 4.65 percent from 4.79 percent, and 5-1 adjustable rate mortgages also fell to 4.30 percent, down from 4.49 the week prior.
On Monday, rates for 30-year fixed purchase mortgages dropped further, with the average rate on Zillow Mortgage Marketplace at 5.19 percent. For current, up-to-the-minute rates, visit www.zillow.com/Mortgage_Rates/.
Thirty-year fixed mortgage rates varied by state. California mortgage rates, Georgia mortgage rates and Pennsylvania mortgage rates decreased the most, from 5.39 percent to 5.21 percent in California, from 5.32 percent to 5.16 percent in Georgia and from 5.42 percent to 5.26 percent in Pennsylvania. Ohio mortgage rates (5.39%), Illinois mortgage rates (5.36%) and Massachusetts mortgage rates (5.36%) were the highest in the country, while Georgia mortgage rates (5.16%) were the lowest.
The Zillow Mortgage Rate Monitor is compiled each week using thousands of mortgage rates for conforming loans quoted on Zillow Mortgage Marketplace by mortgage lenders to borrowers who have submitted loan requests. State-level data is gathered for the top 20 states with the highest quote volume on Zillow. Learn more about our rates.
For more information, visit http://www.zillow.com/.
U.S. Treasury: 31% front-end DTI (debt-to-income) ratio, and less than 55% back-end DTI
FHA (Federal Housing Administration) Old: 29% front-end DTI, and 41% back-end DTI
FHA New: 31% front-end DTI, and 43% back-end DTI
Fannie Mae: 36% benchmark back-end DTI with a maximum of 45% with “strong compensating factors”
Conventional loans: 28% front-end ratio, and a 36% back-end ratio
My rule of thumb is a maximum 30% front-end DTI. This means that a homeowner’s monthly house payment or PITIA (principal, interest, taxes, insurance, and association fees) should be no more than 30% of the gross monthly household income. For every $1,000 per month in household income, the homeowner should be able to afford $300 of house payment.
The trouble with these guidelines is that they fail to take into account other mitigating factors. For example, a couple with four children paying their own medical insurance premiums is probably going to be able to afford less house than a young couple with no children whose employers provide health insurance. Likewise, a family that spends $400 per month to heat their home will have less money available for a house payment.
Let’s look at a specific example. Suppose a family of four is pulling in about $6,000 per month. That’s $72,000 annually. To simplify, we’ll assume the family is debt free, except for the new home they are about to purchase. Based on a front-end DTI of 31%, the couple should be able to afford a monthly house payment of $1,860. That leaves them with $4,140 per month to cover everything else.
According to Ginnie Mae’s ‘How Much Home Can You Afford?’ calculator, an annual gross household income of $72,000 can afford a monthly house payment of $2,235. This represents a 37% front-end DTI, which is outside most guidelines.
Before we encourage the couple to purchase a $200,000 plus house, let’s take a look at their current monthly budget. Assuming we were to sell them a house and saddle them with a $1,860 monthly mortgage payment, here’s where the rest of the money ($4,140) would be going each month:
Income taxes (28 percent) $1,160
Daughter’s college $1,000
Electricity (avg.) $250
Husband’s health insurance $160
Groceries $400
Auto insurance $180
Auto fuel $100
Auto license $28
Auto maintenance/repairs $200
Charitable contributions $100
Movies, TV, Internet $120
Medical/dental (un-reimbursed) $250
Clothing & shoes $80
Dining out $100
Gifts $50
Personal care $40
Pets $40
Total $4,258.00
You wouldn't’t exactly characterize this family as living large, yet if they had a house payment of $1,860, they would be struggling every month to make ends meet.
What we as real estate professionals can learn from this example is that home financing eligibility guidelines are just that - guidelines, ballpark figures to get the conversation going. Mortgage lenders, real estate agents, and other professionals who are providing guidance to homeowners on how much house they can afford do their clients a grave disservice by using these general guidelines to make recommendations to specific families.
Currently, we are doing this all backwards. We tell homeowners how much house they can afford and then expect them to make the tough budget decisions to make the payment affordable. When the family still can’t afford their house payment, we assume they are overspending and send them to credit counseling to become further humiliated.
Perhaps a better way to qualify homeowners for mortgage loans is to start with the family’s existing budget and projections and develop a realistically affordable house payment based on current and projected net income and monthly expenses. Remember, every family’s situation is unique. We need to tailor their house payment to their budget, not the other way around.
