Tuesday, December 22nd, 2009
Homebuilders Surge on Upbeat Report, Mixed Outlook
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Pulte Homes, Inc. (NYSE:PHM), KB Home (NYSE:KBH), Lennar Corporation (NYSE:LEN), and other homebuilders moved sharply higher after home sales surged 7.4% in November, but the industry sees a mixed outlook ahead.
Home Buying Surges…
Existing home sales spiked 7.4% in November as first-time homebuyers rushed to close sales before the original November 30th deadline for the recently extended and expanded tax credit, according to the National Association of Realtors. Existing home sales rose 7.4% to a seasonally adjusted annualized rate of 6.54 million units, which is 44.1% higher than the 4.54 million-unit pace in November 2008.
“This clearly is a rush of first-time buyers not wanting to miss out on the tax credit, but there are many more potential buyers who can enter the market in the months ahead,” said NAR’s Chief Economist Lawrence Yun. “We expect a temporary sales drop while buying activity ramps up for another surge in spring when buyers take advantage of the expanded tax credit, which hopefully will take us into a self-sustaining market in the second half of 2010.”
An NAR practitioner survey showed that first-time buyers purchased 51% of homes during the month, while the average commitment rate for a 30-year, conventional, fixed-rate mortgage fell to 4.88% in November. However, 30-year rates rose sharply Tuesday by a shocking tenth of a point in a single day, and have moved from about 4.75% a few weeks ago to what will likely be around 5.125% at the end of Tuesday’s session.
A Dark Cloud Remains…
Despite the positive outlook for the industry, figures released on Monday by the Office of Thrift Supervision and the Office of the Comptroller of the Currency found that the number of home foreclosures in the first quarter topped the 1-million mark. In fact, the percentage of prime borrowers whose loans were 60 or more days overdue doubled between July and September compared to the same period a year ago.
High unemployment is making it increasingly difficult for borrowers to make timely payments on their debts. Meanwhile, many people whose monthly installments have been lowered are also unable to keep up with their payments. In fact, of all mortgages serviced by national banks and thrifts, only 87.2% were current and performing loans. And a shocking 6.2% of the servicing portfolios were seriously delinquent mortgages past 60 days overdue.
The Takeaway…
- Home buying increased 7.4% during the month of November, which can be primarily attributed to the anticipated expiration of the home buyer tax credit.
- Buying may be more tamed in the months ahead as the home buyer tax credit mania subsides, interest rates head higher for 30-year mortgages, and high unemployment leads to additional problems for the industry.
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-- Written by Simon Monger
