Interest rates impacting buyers

Sales of newly constructed homes nationwide decreased 7% from November to December.

Some analysts believe this signifies problems with the recovery of the housing market, according to the Commerce Department. December sales were below the projection by analysts polled by the Dow Jones Newswires and were at their lowest level since July, when interest rates started to rise.

Interest rates ticked up in reaction to the Federal Reserve’s plans to start cutting back a bond-buying program intended to keep borrowing costs low. Home sales decreased in July, but then bounced back the following months. The final statistics for 2013 indicated the housing sales were half the rate of the years before the peak of the real estate market, and this is being attributed to the colder-than-usual weather.

The increased demand for housing in markets having consistent job growth, coupled with low interest rates, have been driving the economic recovery. However, new-home building in some markets surpassed sales in recent months.

In Greenwich, Realtors are reporting there is demand for new homes and builders are in search of land to satisfy the need. Homes are being purchased from architectural drawings. (e.g., 71 Riverside Lane, 6 Elizabeth Lane and 11 Knoll Street). Now, with the cold weather, buyers are seeking gas heat in addition to town sewer and water in their new homes.

It is expected this year that interest rates will continue to tick up as the economy continues to recover and the Federal Reserve tries to phase out its bond-buying program. Last week the Federal Reserve decided to scale back its bond-buying program for the second time in six weeks. The Fed is planning to cut its purchases of Treasury bonds and mortgage-backed securities from $75 billion to $65 billion, and it’s expected to continue cutting these purchases by increments of $10 billion in the coming months.

The Fed has become more optimistic about the economy, although job growth slowed in December and that impacted the selloff in emerging markets. The rate of growth in gross national product appears to have increased over 3% in the second half of 2013. The Fed is projecting that the growth of the gross national product can be maintained at 3% this year and will be above 3% next year without triggering inflation.

The median sale price for a new home across the nation in December was up 4.6% from the last month in 2012. This was the highest price since April 2013. Rising prices and increasing mortgage rates are presenting some challenges for buyers in some markets that are very active (e.g. San Francisco). Pending sales of existing homes are improving after dipping mid-year 2013, as was reported last week, according to the National Association of Realtors.

Existing-home sales are projected to be at the same level this year as in  2013. The supply of new homes, however, needs to increase to ease supply shortages, as is the case in Greenwich. Many economists forecast that strong demand for new construction will motivate developers and builders.

 

Mary Ann Clark is a Realtor with Coldwell Banker at 177 West Putnam Avenue in Greenwich. Questions or comments may be emailed to [email protected]  

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