Was the number of new home starts the reason that home builder confidence was unchanged? I wonder how confident everyone will be after the Fed’s statement?
Today is the big day that we should find out if or when the Federal Reserve will start to taper their current quantitative easing program. As I have been warning folks, this could have a negative effect on real estate and the economy because it should lead to higher mortgage rates.
Not that rates are really that high if you remember Friday’s post?
New Residential Construction Starts
Great news yesterday that the number of housing starts increased according to the Census Bureau and HUD.
How much? Well the number of starts in August 2013 was 0.9% higher than July 2013 and 19.0% higher than the August 2012 level. Check out the chart showing US Housing Unit Starts:
Home Builder Confidence Still Up
Maybe the number of housing starts is why home builder confidence was unchanged for September according to the National Association of Home Builders/Wells Fargo Housing Market Index. After four months of rising confidence, September’s HMI reading was unchanged from August.
Not that this is a bad thing. It was still over 50 and readings over 50 indicate that more builders view housing market conditions as being positive than negative.
NAHB Chairman Rick Judson said:
While builder confidence is holding at the highest level in nearly eight years, many are reporting some hesitancy on the part of buyers due to the sharp increase in interest rates. Home buyers are adjusting to the fact that, while mortgage rates are still quite favorable on a historic basis, the record lows are probably a thing of the past.
NAHB Chief Economist David Crowe said:
Following a solid run up in builder confidence over the past year, we are seeing a pause in the momentum as consumers wait to see where interest rates settle and as the headwinds of tight credit, shrinking supplies of lots for development and increasing labor costs continue
Great to see that home builders are confident. But since we should be getting word from the Federal Reserve today about their QE plans, I wonder what the HMI will be next month?
Or how high mortgage rates will be?
According to the NAHB, builders expectations for housing market conditions within the next six months did decrease. But they say this is more because of the typical slowdown for the Fall & Winter months.
Not High Noon But 2 Hours Later
Instead of the stuff hitting the fan at high noon like it did in the old Westerns, today, it will be 2PM. Because that is when the Federal Reserve will publish its statement after its two-day Federal Open Market Committee (FOMC) meeting. Many economists think this will be when the Fed finally announces that it is tapering quantitative easing.
Quantitative easing was designed to keep long-term interest rates low and stimulate the economy. QE refers to the Fed buying $45 billion worth of Treasury bonds and $40 billion worth of mortgage bonds every month. Some economists think the Fed will announce they are going to lower their monthly purchases by $5 Billion to $15 Billion.
Every time the Fed hinted at ending or “tapering” quantitative easing, it has caused mortgage rates to rise. When the Fed does finally start to reduce its securities purchases, it means the demand for securities (bonds) should decrease.
Which usually means bond prices will fall.
When bond prices fall, mortgage rates typically rise.
I will try to post more about the Fed’s decision, whatever it may be, tomorrow!