Do New Homes Simplify Lending?

Newly built homes may make up a relatively small part of our overall housing market, yet I think Savannah homeowners have to be encouraged by the trends we are seeing. This month, the National Association of Homebuilders reported that construction spending has turned up (“A Housing Recovery is Gathering Steam”) after its long slide. In August, the Commerce Department reported that overall sales have jumped 25% over the past twelve months. So far, so good.

Yet it’s still true that many observers (I’m one) think that these encouraging numbers would be a lot better if it were easier to finance home purchases…particularly for previously occupied homes. New homes have an advantage right now in this department. At a time when obtaining financing can be a stumbling block, there are several reasons why lenders may gravitate toward financing new homes.

Part of the momentum has to do with recent history. One of the main reasons for the rise in newly built home sales since 2010 has been the number of foreclosures on new homes. Many of these were built on spec, never lived in, then turned over to lenders when the original investors could no longer afford to support them. Since foreclosed homes are usually cheaper than normal sales, that lower price made it easier to gain financing approval.  Added to these is the number of non-distressed new homes whose financing is available directly through the builder.

 

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Other factors make new homes simply easier to finance. From the lender’s point of view, new homes look like a slam dunk when it comes to safety and compliance issues: if they are on the market, they’ve passed the test. New homes in Savannah are usually more energy-efficient -- plus, they have been constructed with today’s buyers’ preferences in mind.  No home should ever be purchased without standard inspections, but new homes can often avoid some additional inspections that might be ordered for older homes.  New homes bypass heirloom health concerns like lead and asbestos – trimming loan-processing complexity.

Lenders as well as buyers of new homes can plan on less capital being required downstream, after the purchase, to keep properties in top shape. That smaller maintenance load makes it easier for the new owners to meet their mortgage requirements, which translates into lowered risk for lenders. More immediately, if a previously owned home is in need of major repairs – that cost can postpone or derail a loan closing. 

It’s all part of why buying new homes in the Savannah area can be an attractive option – whether you are a first timer or home-buying veteran.  But it’s only one of the many elements that go into purchasing a home.  Whenever you would like to discuss the tradeoffs available as the market picks up steam, we’re here anytime to go over all of your options.

Home Sales: The New Normal is…Normal!

September is a transition time for almost everybody. Here in Savannah, the kids have shifted into school gear, adults have moved out of vacation mode, and businesses are already sprucing up for the (believe it or not) Holiday Season.

In real estate, we are looking with more than casual interest at what’s going on nationally. Especially those measures that tend to affect Savannah area home sales. The largest professional association in the country is our own National Association of Realtors^®.  At the beginning of September, they broke another piece of welcome news. This one looks like the difference between ‘indicators’ of a strengthening home sales market -- and signs that it’s already fact.

The NAR release was about TOM. No, as you have probably guessed, TOM isn’t some real estate broker’s name -- it’s the Time On Market measure. For Savannah homeowners who are selling (or planning to sell) their properties, it’s a vital measurement of one of the two most important characteristics of how things are going – a tip to what they may expect when they list. Along with median price trends, it tells the story of whether the market is hot, cool, or somewhere in between.

For some years now, TOM has been an uncooperative sort of fellow. Following the financial crisis came skyrocketing foreclosures…then the fallout from that -- painfully long TOMs marking the lengthening time it took to move homes through the market. TOM had stretched out to a painfully long median of 98 days – close to the longest ever.

 

The good news: TOM is just about back to normal. From the cyclical peak hit in 2009, by mid-summer, he was back “in the range of historic norms for a balanced market.”  Traditional sellers were reporting the median TOM had returned to the balanced range of six to seven weeks. IOW, TOM is finally behaving himself.

 

And what about that other half of the picture that helps guide home sales expectations? 

 

I think it’s too soon to tell for sure, but the head economist at NAR knows what history tells us to expect when this kind of balanced market returns. According to him (Lawrence Yun), “Our current forecast is for the median existing home price to rise 4.5% to 5% this year.”  Plus another 5% in 2013!

 

So the transition that September means for everyone else seems to be underway in the real estate world: and it’s a transition back to home sales normalcy. In light of what we were looking at a just couple of years ago, I think it’s fair to say we are delighted that ‘normal’ is the ‘new normal!’