May Sees an Increase in New Home Sales

 May 2022 saw an increase in new home sales and many say it is due to the rush of buyers to buy before the June interest rate increase. May saw a 10.7% increase to a 696,000 seasonally adjusted annual rate from April in sales of newly built single-family homes. This is based on the number of

homes that would sell if the same pace continued over the next 12 months. New home sales though are down 10.6% in 2022 on a year-to-date basis.

For a sale to count, a new home sale only occurs when a sales contract is signed or a deposit is accepted. The new home can be in any stage of construction and does not have to be completed.

“Though new home sales registered a solid increase in May, we expect sales to decline in June following the Fed’s action to significantly raise interest rates in an effort to cool the economy and ease inflation,” said Jerry Konter, chairman of the National Association of Home Builders (NAHB) and a home builder and developer from Savannah, Ga. “High construction costs and rising mortgage rates are pricing many buyers out of the market. Only 10% of new homes were priced below $300,000 in May, compared to 23% a year ago.”

“While sales were up in May, the 696,000 pace was 5.9% lower than a year ago and new home sales on a year-to-date basis are down 10.6% thus far in 2022,” said NAHB Chief Economist Robert Dietz. “Moreover, the months’ supply measure is elevated at 7.7, but existing home inventory remains very tight and this supports demand for new construction.”

The inventory of new single-family homes is still up at a 7.7 months’ supply which is up 42.6% over 2021. With the inventory up, the median sales price did go down to $449,000 in May from $454,700 in April. This decrease can be blamed on higher construction and development costs.

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Where To Find Price Cuts in Today’s Hot Housing Market

 

Today everyone hears of the hot housing market with home prices soaring, but this is not the case in some areas of the country. The regional housing market is being to see a big uptick in price cuts which means the housing market is beginning to slow down.

According to Redfin, in May 2022 there were more price cuts than compared in May 2021 among the 108 regional housing markets they measured. In fact, only six of the regions did not see price cuts. May 2022 saw 25.7% of the listings with price cuts whereas only 15.7% had price cuts in May 2021. Of the 108 regions, 29 of the regions saw over 30% of its home listings cut in price.

 

The regions that are seeing these price cuts first are the regions that shot up the most in prices during the pandemic. Provo, Utah was on top of the list with 47.8% of its home listings showing price cuts between May 2021 and May 2022. The top ten regions were Tacoma, WA with 47.7%, Denver, CO at 46.9%, Salt Lake City, UT at 45.8%, Sacramento, CA at 44.3%, Boise, ID with 44.2%, Ogden UT with 42.6%, Portland, OR with 42%, Indianapolis, IN with 41.9%, Philadelphia, PA with 41.2% and Seattle, WA with 40.6%. New Orleans made the top 20 with 36.4% of its home listings seeing price cuts.

Professionals in the industry say that this cooldown is by design. The Fed announced they were going into inflation-fighting mode. This can be seen with the mortgage rates rising. The average 30-year fixed mortgage rate went up from 3.2% to 6.7% over the past six months. This coupled with record home price appreciation has pushed many buyers out of the market. Those borrowers who must meet strict debt-to-income ratios have lost their mortgage eligibility. This has caused a shift in the U.S.housing market from a hot market to a cool-down market.

The cooling in the housing market is set to only intensify in the coming months. According to Freddie Mac’s deputy chief economist Len Kiefer the housing market has entered into the “most significant contraction in activity since 2006.”

“I’d say if you are a homebuyer…or a young person looking to buy a home, you need a bit of a reset. We need to get back to a place where supply and demand are back together and where inflation is down low again, and mortgage rates are low again,” Fed chair Jerome Powell told reporters last week.

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Tips for Purchasing a Home That Will Appreciate

 Most houses in the current housing market will appreciate no matter where they are. This is not always the case so it is a good idea to make sure you choose a house that will appreciate. When choosing a home, there are many factors to consider. Even though some are out of your control here are some tips to think about when choosing a home when it comes to a home’s appreciation.

 

Find a Valuable Property

Land value can determine some of the value of your home. Land appreciation is influenced by fewer factors than the house itself. Choosing a home that is on a valuable piece of land will help your home’s appreciation. Regardless of a home or structure, the land value can help value to remain consistent.

Location, Location, Location

In real estate, it is all about location.  This old saying hasn’t become a staple of real estate for no reason; location really does play a massive role in the desirability and, by extension, value of a home. There are a good amount of factors that make a piece of land valuable such as proximity to desirable features (parks, shopping, restaurants, etc.), the quality of the school district, a quick (or at least reasonable) commute to a city, and if it is considered an “up and coming” neighborhood.

Consider a “Fixer-Upper”

When a home needs some TLC, the current value is usually lower than what it could be fixed up. Many want a move-in-ready home that does not need any improvements and are willing to pay the premium for this convenience. If you are willing to renovate, then you can pay a low price, fix it up and sell for a premium. If location is very important to you, then you might be able to find a “fixer-upper” for a lower price in your desired neighborhood.

Be Smart About Upgrades

Renovations can add up in costs. When you are choosing what to update, be strategic in choosing what work needs to be done. You need to make sure the renovations you choose to do, will add value to your home.  Certain renovations are pricier than others and some are more valuable in others in terms of how they can contribute to your home’s appreciation.  Many renovations that will add the bucks to your home include garage door replacement, kitchen remodeling, siding replacement, and window replacements.

If you are ready to purchase a home, a Realtor can help you find the right home in the right neighborhood. A Realtor can help you decide on the best renovations and recommend contractors. If you want a move-in ready, they can help you find a home that will definitely appreciate in the future.

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How To Get a Combined Land and Construction Loan

 

Most of the time everyone thinks they have to purchase land and then build later, but this is not the case. Many do not want to have to wait for a later construction date. Even though lenders are not comfortable with combining land and construction loans, it can be done.

First Step – Find a Lender

“Many commercial lenders/mortgage companies do not feel comfortable financing land and/or construction in rural areas,” says Taylor Hart, manager of the Auburn/Opelika Branch of First South

Farm Credit. “If a commercial bank will do construction loans in rural areas they often will require the owner to survey out a smaller parcel for the home site which leads to added costs and time for survey and recording at the courthouse. This ‘subdividing’ can also cause the project further delays if the county requires it to go before the subdivision committee.”

The Loan Process for Approval

With a company like First South, a potential builder/land purchaser will need to follow their loan approval process. The process will protect both the lender and the borrower when dealing with a combined loan for land to build.

“We would need plans, specifications, and an executed contract from a licensed builder to be able to have an appraiser arrive at an appropriate appraised value. We can typically lend up to 85% of the appraised value of the total package of land and home,” Hart explained..

“Barndominiums -some sort of combination of living quarters with a barn look- have become really popular lately and most commercial lenders are not comfortable with this type of construction. As a rural lender First South can provide construction loans on these as well. Most of our construction type loans are dealing with either homes, barns, or poultry houses (which would be commercial, and have their own different set of criteria),” he said.

How the Combined Loan Is Set Up

Combined Loans that are done by First South follow a different pattern. There are many options to choose from on setting up land for build loans.

“We are able to do construction loans for up to 12 months, interest only if that is what the member wants. We then do a permanent longer term loan. We also have a program we offer that is done with one closing still consisting of a construction period followed up with the longer term mortgage. This is popular as rates are rising due to the fact we can get the rate and term locked down now instead of the end of construction,” Hart pointed out. “This process takes the risk of rising interest rates during construction out of the equation. First South likes to sit down with our members and tailor the loan to what fits where they are in life and what is comfortable for them. My suggestion is to call the First South office in your area to discuss options. We can lend with terms up to 30 years”.

If you feel a combined loan is a fit for you, then contact First South today. “First South is a co-op owned by our borrowers. As such, we pay a patronage refund back to our borrower/members once a year. Does your mortgage company pay you money back,” he asked.

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