Low mortgage rates attracting consumers to the new home market: Meyers
Pending new home sales increased both on a month-to-month and annual basis, benefitting from the current low mortgage rate environment, although they are still constrained by inventory issues, a Meyers Research report said.
Meyers New Home Pending Sales Index for November was 120.5, up 1.3% from October and 14.3% over November 2018.
"The renewed momentum in the U.S. housing market accompanies the rebound in broader economic growth," said Ali Wolf, director of economic research at Meyers Research in a press release. "November's new home sales show that homebuyers are feeling confidence and are eager to take advantage of low mortgage rates."
Even though home starts increased more than forecast in November, the rise in activity is not enough to counter the slowdown over the prior 11 months, a BuildFax report previously said. There were fewer mortgage applications submitted to purchase a new home in November compared with October, the Mortgage Bankers Association found.
This is the second time Meyers has released the index. It is benchmarked to June 2016 at a value of 100 and it is seasonally adjusted. The index has been calculated for each month since then, with November representing the highest point ever. It is backed by data from Meyers Research affiliates Zonda and Metrostudy.
Given that the new home market is just 10% of all purchase transactions, it makes the sale data susceptible to outsized swings in contract activity. As a result, Meyers normalizes the data to ensure consistency across the index.
This new index differs from the National Association of Realtors' pending sales index, which measures existing home sales. The Census Bureau and Department of Housing and Urban Development issue a new home sales report measuring transactions at an annualized pace.
Out of the 10 markets that Meyers identified as key, Denver had the largest growth over October, 11.1%, and the third most from the previous year at 25.4%. The Los Angeles metro area had the most annual growth at 33.9%, with Seattle close behind at 33.6%.
But new home sales in Los Angeles for November were 20% below that market's peak in May 2017. For San Francisco, new home sales were 27% below the peak month of March 2017.
The drop-off can be attributed limited supply, high prices and the tax reform bill signed in 2017 that eliminated state and local tax deductions, Meyers said.