New home market is slowing - Is it time to move?

April 22, 2006

According to the April survey by the National Association of Homebuilders, the builders’ confidence level is at 50 - the lowest since November 2001 - and down significantly from the 67 level in last year's April survey.

Housing permits, which generally predict construction nine months out, and are another sign of homebuilders confidence, are at a rate of 2.1 million per year. This is down 5.5% from February, but 1.1% above last year’s rate.

What It Means:

This is actually a healthy sign, in that it shows the home market is slowing gradually, and is not in a panicky free-fall. It also means that the Fed will probably continue to raise short- term interest rates. These affect interest-only and variable-rate mortgages. Fixed rate mortgages are based on the 10 year Treasury, which continues to stay low, thanks to overseas investors.

Action Steps:

If you must move now, the best way to protect yourself in this slowing market is to downsize if at all possible. Sell your existing house, and put as much equity as possible into a smaller house. Finance the remaining loan with a fixed interest mortgage, not a variable or interest-only loan. If you do need a larger house, you will be better able to afford it in a few years...when the housing market has reached its bottom.

Source: National Association of Homebuilders, U.S. Commerce Dept., Dept. of Housing and Urban Development