Lee Morof's Real Estate Blog

After two months of declining builder confidence, the National Association of Home Builders Housing Market Index gained two points in January with a reading of 58. Component readings of the HMI were also higher with builder confidence in current market conditions rose two points to an index reading of 63. Builder confidence in housing market conditions over the next six months rose three points to 64.

The index for buyer traffic in new housing developments rose one point to 44. While index readings above 50 indicate positive market conditions, the index reading for buyer traffic is typically lower than 50.

Lower Mortgage Rates Compel Home Buyers to Act

Falling mortgage rates contributed to the uptick in home builder confidence, but affordability continued to impact first-time and moderate-income home buyers. Robert Dietz, NAHB chief economist, said: “Builders need to continue to manage rising construction costs to keep home prices affordable, particularly for young buyers at the entry level of the market.”

Analysts suggested that builders could consider offering deeper discounts and incentives to buyers to increase sales of new homes. Homes not sold during November and December added to current inventories of new homes available, which provides home buyers with more choices and less competition for homes.

Home Builders Expect More Buyer Traffic

Lennar Corporation, a major home builder said that increased buyer traffic indicated that 2019 home sales would increase and that improving economic conditions were expected to improve housing market conditions and home sales in 2019.

Builders expect to face continued headwinds in 2019; affordability tops the list, but relatively low inventories of homes in some areas dampen buyer enthusiasm. Single-family housing starts are also expected to be lower than the long-term yearly average. As economic conditions improve for would-be home buyers, a slim supply of homes and high home prices present obstacles to buyers.

Your trusted real estate agent is one of your best partners in your next home buying or selling transaction. Be sure to contact them to discuss market conditions in your area.

The National Association of Homebuilders reported a two-point increase in builder confidence in May. The NAHB Housing Market Index reading increased from 68 in April to 70, which was the second-highest reading since the economic recovery started. May’s reading exceeded analyst expectations of a flat reading for May. Builder confidence rose as demand for homes continued to rise; this factor overrode builder obstacles including higher prices for lots and ongoing labor shortages. A new tariff on lumber was also expected to dampen builder confidence.

Component Readings Suggest Strong Builder Confidence in Current and Future Housing Markets

The monthly Housing Market Index is comprised of three components. Builder confidence in current housing market conditions rose two points to 76; the reading for builder confidence in market conditions for the next six months rose four points to 79. Builder confidence in buyer traffic in new homes dropped one point to 51, but overall, builder confidence in market conditions is strong as any NAHB Housing Market Index reading over 50 is considered positive.

Fewer Mortgage Applications: Home Buyers Don‘t Share Builder Optimism

According to the Mortgage Bankers Association, mortgage applications dropped 4.30 percent year-over-year in April, and were 20 percent lower than in March. While the Mortgage Bankers Association doesn’t report seasonal adjustments, fewer applications for purchase mortgages on new homes illustrated ongoing affordability challenges faced by first-time and moderate income home buyers.

High demand for available homes puts mortgage-dependent home buyers at a disadvantage when cash offers are in play. Rapid escalation of home prices creates difficulty for first-time and moderate income buyers as down payment and mortgage qualification requirements sideline buyers.

Increasing home builder sentiment has not corresponded to the number of new homes being built, which industry analysts consider the main solution to high demand for homes driven by short inventories of homes. First-time buyers are important to housing markets as they enable “move-up” buyers to sell their homes and buy new or larger homes.

According to the National Association of Home Builders Housing Market Index for March, builder confidence in market conditions reached its highest level in 12 years and was six points higher than February’s index reading of 65.

Housing market index readings are based on three components. Builder confidence in current market conditions for new single family homes rose seven points to 78; builder confidence in market conditions for the next six months increased five points to an index reading of 78. Most surprising was the reading for buyer traffic in new housing developments, which eight points to 54 in March. Buyer traffic readings typically don’t exceed the benchmark reading of 50, which indicates neutral builder sentiment. Builder confidence in buyer traffic for March surpassed 50 only twice since the housing bubble era.

Housing Market Index Readings Expected to Moderate in Coming Months

Robert Dietz, Chief Economist for NAHB, said that Housing Market Index readings will probably be more moderate in coming months as builders continue to face obstacles. Builders cited rising costs for materials and ongoing shortages of labor and lots. On the upside, builders surveyed said that a less regulatory environment contributed to higher confidence readings.

While home builder confidence is higher, the connection between confidence and building more homes isn’t matched by housing starts. Builders also said that rising mortgage rates are a barrier to buying new homes. The Federal Reserve’s Federal Open Market Committee raised the target federal funds rate to 0.75 to 1.00 percent on Wednesday; federal rate hikes typically influence private lenders to raise consumer rates including mortgage rates.

In a post-meeting statement, Fed officials said that the federal funds rate remains accommodative and will continue to sustain economic growth and the Fed’s goal for a long-run inflation rate of 2.00 percent. The Fed cited its dual mandate of achieving maximum employment and price stabilization as supporting its decision to raise rates, but stated that actual decisions to raise the federal funds rate are based on close readings and information about global and domestic economic developments; future decisions could be impacted by emerging economic factors.

Builder confidence in markets for new homes fell three points in February to a reading of 58. January’s reading was revised upward to 61. Builders have repeatedly expressed concerns shortages of labor and lots for development, but continue to express confidence in future sales conditions.

David Crowe, National Association of Home Builder’s (NAHB) chief economist, said that builders are watching slowing economic trends, but also cited low mortgage rates, improving labor markets and pent-up demand for homes as factors for strong U.S. housing markets. The NAHB notes that any reading over 50 indicates that more builders were confident than those who were not.

HMI Components Readings

The three readings used to calculate the NAHB Housing Market Index (HMI) were also lower. The reading for current sales conditions fell by three points to 65; the reading for sales conditions over the next six months fell by one point to 65. Home builders were less confident in buyer traffic in new home developments; the February reading dropped by five points to 39. Although the buyer traffic gauge was its lowest in nine months, it hasn’t topped the benchmark of 50 since the peak of the housing bubble ten years ago.

Three month rolling averages for the four regions charted by NAHB also dropped. The Northeastern region was 2 points lower at 47; the Southern region also lost two points for a reading of 59. The Midwestern region lost one point for a reading of 57 and the Western region dropped three points for a reading of 72.

Building New Homes Seen as Solution to Pent Up Demand for Homes

Analysts responded to February’s HMI with mixed views. Some analysts said that buyer demand for homes would override concerns over building costs. This view makes sense in view of pent-up demand driving up home prices. At some point, affordability and buyers ability to qualify for mortgage loans are likely slow the rate of increasing home prices.

Less pent-up demand could also help first-time and moderate income buyers compete for homes as buyer demand eases. First-time and moderate income buyers are essential in driving home sales, as their purchases of pre-owned homes allow homeowners to buy larger homes or relocate.

Reports on Housing Starts and Building Permits scheduled this week will shed additional light on home builder activity.

Last week’s scheduled economic reports included the NAHB Housing Market Index, Housing Starts, FOMC statement and Fed Chair Janet Yellen’s press conference. In addition to weekly reports on jobless claims and mortgage rates, inflation reports were also released.

Builder Confidence Slips, Housing Starts Increase

According to the NAHB / Wells Fargo Housing Market Index for December, home builder confidence slipped by one point to a reading of 61 as compared to an expected reading of 63 and November’s reading of 62. December’s reading was three points higher year-over-year. Readings over 50 indicate that more builders than fewer are confident about housing market conditions. December’s confidence reading remained higher than 2015’s average reading of 59.

Components used in comprising the NAHB HMI also slipped in December. Builder confidence in current market conditions fell one point to a reading of 66; the six months sales outlook fell two points to 67 and the reading for buyer foot traffic in new developments also decreased by two points to a reading of 46. The reading for buyer foot traffic has consistently remained below the neutral benchmark of 50 since the housing bubble ended.

While builder confidence eased, housing starts rose in November with 1.17 million starts reported. Analysts expected a reading of 1.14 million starts based on October’s reading of 1.06 million housing starts. During much of 2015, demand for homes accelerated due to slim inventories of available homes; new construction is seen as essential to easing demand.

Fed Raises Interest Rates, Mortgage Rates Higher

The Federal Open Market Committee of the Federal Reserve raised its target federal funds rate from a range of 0.00 to 0.25 percent to a range of 0.25 percent to 0.50 percent. While the Fed’s increase is expected to affect consumer lending rates for auto loans and credit cards more than mortgages, Freddie Mac reported that rates for fixed rate home loans rose last week. The average rate for a 30-year fixed rate mortgage rose by two basis points to 3.95 percent and the average rate for a 15-year fixed rate mortgage increased by three basis points to 3.22 percent. The average rate for a 5/1 adjustable rate mortgage was unchanged at 3.03 percent. Discount points were unchanged for fixed rate mortgages at 0.60 percent and 0.50 percent respectively while average points for a 5//1 adjustable rate mortgage dropped to an average of 0.40 percent.

Weekly jobless claims fell to 271,000 new claims against expectations of 275,000 new claims and the prior week’s reading of 282,000 new claims.

What’s Ahead

Next week’s economic reports include reports on new and existing home sales, consumer spending and consumer sentiment. Weekly jobless claims and Freddie Mac’s mortgage rates report will also be released as scheduled. No reports will be released on Friday due to the Christmas holiday.

Last week’s economic news included the National Association of Home Builders Index, Housing Starts and FHFA’s report on August home sales. The National Association of Realtors® released its monthly report on sales of previously owned homes.

Builder Confidence and Housing Starts Post Gains

The Wells Fargo National Association of Home Builders Housing Market Index for September posted its highest level of builder confidence in 10 years a higher than expected results with a reading of 64 for October. Analysts expected a reading of 62 based on September’s reading of 61.

The NAHB Wells Fargo Housing Market Index reading is based on three builder confidence readings. Builder confidence in current market conditions rose three points to a reading of 70; builder confidence in housing market conditions over the next six months rose seven points to 75 and buyer traffic in new housing developments held steady with a reading of 47. Any reading over 50 indicates that more builders are confident about market conditions than those who are not.

This news was consistent with September housing starts, which were also higher. The U.S. Commerce Department reported September’s housing starts at an annual level of 1.206 million starts against expectations of 1.139 million starts and August’s reading of 1.132 million housing starts.

Sales of Previously Owned Homes Surpass Expectations

September sales of pre-owned homes surpassed expectations according to a report released by the National Association of Realtors®. Sales of previously owned homes reached 5.55 million sales on a seasonally-adjusted annual basis against an expected reading of 5.34 million sales. August’s reading was adjusted downward from 5.31 million sales to 5.30 million sales of previously owned homes.

Lawrence Yun, Chief Economist for the National Association of Realtors®, cited lower mortgage rates, higher demand for homes and low inventories of available homes as driving higher sales. Slight easing of mortgage credit standards was also said to be driving home sales.

FHFA’s Home Price Index for August showed that home prices for properties associated with mortgages owned by Fannie Mae and Freddie Mac increased at a rate of 5.05 percent in August as compared to a growth rate of 5.80 percent year-over-year in August 2014.

Mortgage Rates Mixed, Weekly Jobless Claims Lower

Weekly reports on mortgage rates and jobless claims yielded mixed results. Freddie Mac reported that average rates for fixed rate mortgages dipped with the average rate for a 30-year fixed rate mortgage three basis points lower at 3.79 percent; the average rate for a 15-year fixed rate mortgage fell by five basis points to 2.98 percent. The average rate for a 5/1 adjustable rate mortgage ticked upward by one basis point to 2.89 percent. Average discount points were 0.60 percent for a 30-year fixed rate mortgage, 0.50 percent for a a5-year fixed rate mortgage and were unchanged at 0.40 percent for a 5/1 adjustable rate mortgage.

Weekly jobless claims were lower than expectations with a reading of 259,000 new claims filed against expectations of 265,000 new jobless claims. New claims were higher than the previous week’s reading of 256,000 new claims. Analysts are keeping an eye on jobs reports as stronger job markets are essential to expanding home sales.

What’s Ahead

This week’s scheduled economic news includes Case-Shiller reports on home prices along with reports on new home sales, consumer confidence and consumer sentiment. Core inflation readings will be released Friday after Thursday’s releases of Freddie Mac mortgage rates and weekly jobless claims.

Last week’s economic releases included several reports related to housing. The Wells Fargo/NAHB Housing Market Index achieved its highest reading in nearly 10 years. Housing Starts dipped in August and Building Permits issued in August exceeded July expectations. The week’s big news was actually no news. The Fed’s Federal Open Market Committee decided not to raise interest rates. Fed Chair Janet Yellen followed up on the FOMC statement with a press conference and said that the Fed is not yet ready to raise rates, but that a majority of FOMC members are prepared to raise rates before year-end.

Inflation Rate Remains Well Below Fed Benchmark

The Federal Reserve has set a goal of reaching an inflation rate of 2.00 percent as one of several considerations for raising the target federal funds rate that currently stands at 0.00 percent to 0.250 percent. The Consumer Price Index for August fell from July’s reading of 0.10 percent to -0.10 percent in August. Lower prices were driven by lower fuel costs. The dip in consumer costs was the first since January.

The Core Consumer Price Index, which excludes volatile food and energy sectors, was unchanged at 0.10 percent in August, which matches analyst expectations and July’s reading.

NAHB: Home Builder Confidence Hits Highest Level in Nearly 10 Years

The Wells Fargo/NAHB Housing Market Index reached its highest reading since November 2005 with a one-point increase to a reading of 62 in September. Readings over 50 indicate that a majority of builders are confident about housing market conditions. September’s reading was the highest since November 2005, when the NAHB Housing Market Index achieved a reading of 68.

Housing Starts Lower, But Building Permits Rise

The Commerce Department reported that August housing starts fell to a seasonally-adjusted annual reading of 1.13 million starts against projections of 1.16 million starts and 1.16 million housing starts in July. Residential building permits were higher in August with a reading of 1.17 permits issued for residential construction and 1/13 million permits issued in July.

Mortgage Rates Rise

Freddie Mac reported that mortgage rates rose across the board last week. The rate for a 30-year fixed rate mortgage rose by one basis point to 3.91 percent. The average rate for a 15-year mortgage also rose by one basis point to 3.11 percent and the average rate for a 5/1 adjustable rate mortgage also rose by one basis point to 2.92 percent. Discount points averaged 0.60 got 30-year fixed rate mortgages, 0.70 percent for 15-year mortgages and 0.50 percent for a 5/1 adjustable rate mortgage.

What’s Ahead 

Next week’s scheduled economic news includes reports on new and existing home sales, FHFA’s House Price Index, along with regularly scheduled weekly reports on new jobless claims and mortgage rates.

The National Association of Home Builders (NAHB) / Wells Fargo Housing Market Index reported that home builder confidence rose by one point to a reading of 62 for September. This was the highest reading since November 2005, when the NAHB reported a reading of 68 for home builder confidence. Any reading above 50 indicates that more builders are confident about housing market conditions than those who are not.

NAHB notes that builder confidence has been growing at a moderate pace since July 2014; this is in line with economic conditions in general. Relatively low mortgage rates and stronger labor markets are helping would-be buyers with their decisions to buy homes now.

FOMC Statement and Fed Chair Press Conference: No Rate Hikes Yet

The minutes of the Federal Open Market Committee of the Federal Reserve revealed that Fed policymakers have decided to wait on raising the target federal funds rate, which is currently set at 0.00 to 0.25 percent. While the FOMC statement indicated that policy makers acknowledge moderate progress in economic growth, a majority did not feel that the economy is ready to withstand a rate hike. When the Fed does raise rates, consumers can expect to see higher mortgage rates as well as increases in lending rates for credit cards and loans.

FOMC members said that housing markets were growing at a steady but moderate pace, but that inflation was lagging below the Fed’s benchmark 2.00 percent level due to transitory effects of lower energy and import prices. The Fed expects that inflation will reach its 2.00 percent goal over the medium term and will not likely raise rates until FOMC members are confident that inflation will rise as expected.

FOMC members continued to assert that any decision to raise rates will be based on close review of domestic and global financial and economic trends and will not be based on meeting the Fed’s dual mandate of achieving maximum employment and an inflation rate of 2.00 percent.

Committee members also said that economic conditions could continue to warrant keeping the target federal funds rate below normal levels for the longer term.

Fed Chair Janet Yellen gave a press conference after the FOMC statement concluded. She addressed questions about the Fed’s decision not to raise rates and said that concerns over global developments contributed to Fed policy makers’ decision not to raise rates. Ms. Yellen explained that a stronger U.S. dollar has caused deflationary pressures and increased competition for U.S. exports. The Fed isn’t overly concerned about global conditions at present, but changing circumstances could change the Fed’s likely intention to raise rates before year end.

Last week’s economic news included an encouraging report from the National Association of Home Builders, whose housing market index held steady with a reading of 60 in July. This was the 13^th consecutive month for readings over 50, which indicate that more builders are confident about housing markets than those who are not. July’s reading was noteworthy as it was the highest since November 2005 prior to the recession.

Housing Starts, Building Permits Increase

The Commerce Department provided further evidence of stronger housing markets with reports on housing starts and building permits issued in June. Housing starts rose from May’s reading of 1.07 million to 1.17 million, which surpassed the expected reading of 1.11 million housing starts.

May’s reading for housing starts was revised from 1.04 million to 1.07 million an annual basis.

Construction of apartments and other multifamily housing complexes attained their highest level since 1987, which supports reported trends that millennials who prefer to live in larger cities are renting rather than buying homes. Housing starts gained nearly 10 percent between May and June. Would-be home buyers are also renting due to tighter mortgage approval standards; others may be “sitting on the fence” as they wait for further indications of stronger labor markets and improvements in overall economic conditions.

Building permits issued in June supported trends in housing starts, with permits for multi-family housing units higher by 16. 10 percent and was the highest reading for multi-family building permits since 1990. Analysts said that the increase in multifamily building permits was in caused by the pending expiration of a tax credit for builders in New York State that was set to expire June 30.

Permits for single family homes rose only 0.90 percent in June, to an annual pace of 689,000 but this was still the highest reading for single family housing permits since 2008.

Mortgage Rates Rise, Jobless Claims Fall

Freddie Mac reported that average mortgage rates rose last week. The rate for a 30-year fixed rate mortgage averaged 4.09 percent and was higher by five basis points. The average rate for a 15-year mortgage was also five basis points higher at 3.25 percent. The average rate for a 5/1 adjustable rate mortgage was up by three basis points to 2.96 percent. Discount points were 0.60 percent for 15 and 30 year mortgages and 0.50 percent for 6/1 adjustable rate mortgages.

New jobless claims fell to 281,000 last week against the prior week’s reading of 296,000 new claims and an expected reading of 285,000 new jobless claims. Analysts said that the current reading indicates that last week’s spike in new unemployment claims was a false alarm. Seasonal anomalies and re-tooling at some auto plants were cited as causes for the prior week’s high reading. New jobless claims have remained under the benchmark reading of 300,000 since February for the longest consecutive period in 15 years.

Last week’s reports ended with the University of Michigan’s Consumer Sentiment Index, which fell from June’s reading of 96.1 to 93.3; analysts expected a reading of 95.0.

What’s Ahead

Scheduled economic reports for next week include new and existing home sales, and FHFA home prices along with weekly reports on mortgage rates and new jobless claims.

Home builder confidence remained steady at the highest reading in almost ten years according to the National Association of Home Builders (NAHB) Wells Fargo Housing Market Index for July. The latest reading of 60 for the index was identical to expectations and June’s reading, which was revised to 60 from an initial reading of 59. The NAHB Wells Fargo Housing Market Index is based on readings of zero to 100 with readings over 50 indicating that a majority of home builders surveyed are confident about housing market conditions. July’s reading was the 13th consecutive month of readings above 50.

July’s Housing Market Index Highest Since November 2005

NAHB chief economist David Crowe said that July’s reading is consistent with stronger markets for new and existing homes as well as job growth, but also noted builder concerns over obtaining lots for development and necessary labor at favorable prices.

The monthly reading for housing market condition is based on three components. Two components showed improvement with the reading for current market conditions up one point to 66; the reading for housing market conditions in the next six months gained two points for a reading of 72 and the reading for buyer foot traffic in new housing developments lost one point for a reading of 63.

Report Details Regional Market Conditions

NAHB’s three month moving average of regional builder confidence showed gains of one point in the South for a reading of 61; the Midwest also reported a gain of one point to 55. Builder confidence readings for the Northeast and West each gained three points to readings of 47 and 60 respectively.

NAHB chairman Tom Woods said that based on current readings, housing markets should continue to improve throughout the second half of 2015. Economic analysts agreed with this assessment and noted that evidence suggests that housing markets are seeing a steady upswing.

In unrelated reporting, the Department of Commerce is due to release reports on housing starts and building permits today.