We got some confusing news this week because of mixed signals regarding new home construction…
Up is Down Left is Right
We got some confusing news this week because of mixed signals regarding new home construction. How is it that the National Association of Home Builders (NAHB) / Wells Fargo Housing Market Index (HMI) rose to the highest level since January 2006 despite home builders cutting back in June?
NAHB said that this was the third consecutive rise in the HMI. But on Wednesday the Census Bureau and HUD reported that new housing permits & starts fell in June. The Census Bureau and HUD also said that this is the lowest level for new construction in 10 months.
I am not sure why builder confidence rose when the number of starts & permits fell. Maybe it is the general economy that helped to boost builder confidence? Or falling inventory levels? Or the falling number of foreclosures and delinquent mortgages.
Well, NAHB Economist David Crowe explained that growing confidence is because of lower prices for building materials and more buyers are competing for fewer available homes. In other words, builders are paying less for the materials they need to build houses and are seeing more competition among buyers. More competition probably means increasing home prices.
Good for the builders but bad news for the buyers…
Housing Starts Down
Like I said, housing starts in June fell to the lowest level in nearly a year. However, there is one glimmer of light in this gloomy report. Building permits for single family homes increased to the highest rate since 2008. Also there was a high number of unused permits that may have contributed to the lower number of building permits issued.
Economists are confident that the housing market is going to continue to recover. But they also are worried about possible changes to the mortgage interest tax deduction that could have a negative effect on housing. I have seen the typical “Calls to Action” from NAR to send an email to your elected officials.
Sorry but unless you are making really really huge campaign donations, the idiots in DC don’t really care about what you think.
The End is Near!
Something else that is affecting the economy and the real estate market is all the hysteria about the Federal Reserve “tapering” the quantitative easing program (QE). Quantitative Easing refers to the Fed buying Treasury securities and mortgage-backed securities (MBS) so that the mortgage markets didn’t implode. It was also intended to keep mortgage rates low.
There is no doubt that QE did keep mortgage rates down. But anyone with the sense that God gave a tick knew deep down inside that QE wasn’t going to last forever.
The Take Away:
Who really knows why builder confidence increased when they were cutting back. Maybe the reasons that the NAHB pointed to are true. Or maybe it is just hype or PR to try to get more people buying homes? Sounds like a page out of the typical buy-a-home now cheerleading handbook…
If I was looking to buy a home, I would NOT wait until after the Fed stops QE since it means you will probably be paying a much higher interest rate on your mortgage.