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59% of Home Buyers Rely on Low Down-Payment Government Mortgages

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homebuyers_10_21RISMEDIA, October 21, 2009—The new home market is cooling down and government intervention has been a key driver to new home sales, according to a recent monthly survey of home builders, just released by John Burns Real Estate Consulting. 

In addition to the tax credit that expires Nov. 30, government mortgage programs have been critical in 2009. The survey reveals that 59% of this year’s sales have been dependent on FHA, VA or USDA financing programs with 96.5% to 100% LTV. 

What percentage of your home buyers this year used this type of financing?

Region           Cash    FHA         Jumbo    Other Conforming    USDA    VA         Don’t 
                                    Insured    Loans      Loans                                       Loans   Know
 Midwest         3%         59%        1%              18%                    3%         3%           13%
Northeast        7%        41%          8%            28%                    2%         6%           8%
Northwest        5%       34%         13%           31%                    6%         11%          1%
Northern CA
Region              4%        68%         0%            16%                      0%         8%           3%
Northern
Florida              6%         47%        2%              15%                    16%        9%          5%
Southeast          7%         48%       6%             18%                     3%          11%          7%
Southern
California        6%          48%        15%            19%                     0%          8%           3%
Southern
Florida              22%         59%       4%              13%                      0%          3%           0% 

The highest use of FHA financing was reported by Northern California builders, while Southern Florida builders reported the highest percentage of cash purchases. “The cash sales are most likely due to investor purchases of attached homes,” said Jody Kahn, a vice president with the firm. 

Not surprisingly, Southern California reported the largest use of jumbo mortgages. “The tough underwriting and higher pricing of jumbos has constrained sales of move-up homes,” said Kahn. 

This month’s survey consists of 262 home building industry executives from public and private companies. In total, their insight is reflective of on-the-ground conditions in 86 MSAs and 1,741 communities. 

“The good news for builders is that there seems to be momentum behind the effort to extend the federal tax credit and that the FHA is going to become more conservative, but not significantly curtail operations,” said CEO John Burns. “Political winds can change quickly though, so stay tuned.” 

Survey Highlights:

-The average unsold, finished inventory per community decreased nationally to 2.7 from 3.7 last month. This significant decline in inventory indicates the speculative starts from the summer are being converted to closings. Regions reporting significant declines in inventory per community since last month include Southern California, the Northwest and Southern Florida.

-Average net sales per community dropped from 2.0 to 1.6 nationally, returning to levels last seen in June and July. The net sales rate declined in seven regions compared to only one during the prior month. While significantly better affordability, low conventional mortgage rates, and the federal tax credit continue to support new home sales, builders across the country are reporting declines in traffic and sales rates in September and into October. Some builders lacking entry level inventory to close by November 30th are losing sales to competitors. Seasonality is also contributing to declining sales. 

-Last month’s reports of price increases in California softened this month. Pricing in Southern California is now rated flat, while Northern California pricing is decreasing. This month, Southern Florida builders rated pricing as increasing. The direction of new home prices was unchanged nationally this month, and remains hovering near flat, as builders reporting further decreases in prices offset those builders seeing flat or increasing prices. 

-Builders started more homes in 4 of 10 regions, and trimmed starts in 3 regions. The Northeast, Southeast and Northwest regions are all reporting increased starts in the 8% to 9% range. The Southern Florida region reported the largest increase in starts this month. Notable declines in start rates were reported in the Midwest, Southern California and Northern Florida. 

For more information, visit www.realestateconsulting.com. 

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