Today I am going to talk about several important indicators for real estate and explain what they mean.
Home Builder Confidence
Yesterday, the National Association of Home Builders & Wells Fargo released the NAHB/Wells Fargo Housing Market Index for November 2013. This month’s HMI reading was 54 which is the same as October’s reading (after last month’s numbers were downwardly revised).
Readings over 50 generally indicate that a majority of builders surveyed are confident in current housing market conditions. This is the 6th consecutive month that more home builders see thing as good than bad.
I will add that home builder confidence had fallen in the previous month but is still 20% higher than last year. Also this is the lowest level in the past 5 months despite hitting the highest level in 8 years just 3 months ago.
November’s reading for confidence in sales of single family homes within the next six months fell from 61 in October to 60 in November. Builder sentiment for current home sales was unchanged at 58 and the November reading for builder confidence in buyer foot traffic fell by one point from 43 in October to 42.
NAHB Chairman Rick Judson said:
Given the current interest rate and pricing environment, consumers continue to show interest in purchasing new homes, but are holding back because Congress keeps pushing critical decisions on budget, tax and government spending issues down the road. Meanwhile, builders continue to face challenges related to rising construction costs and low appraisals.
Sad that we are still hearing about low appraisals. And not surprising that Washington is NOT helping the housing market.
David Crowe, chief economist for NAHB said:
The fact that builder confidence remains above 50 is an encouraging sign. Policy and economic uncertainty is undermining consumer confidence.
Another positive thing in the report is they are saying that homes nationwide are undervalued by 4%. They also talk about a limited supply problem and rising mortgage rates. While the inventory problem is not as bad in this area as in other parts of the country, rising mortgage rates are something buyers need to be aware of.
I must mention that home sales normally slow down during the fall and winter months. However builders know this so their confidence rising or falling may not be affected by the seasonal fluctuations as much as we might think.
However, I wonder how home builders feel about the alarmingly low level of household formation? The latest Census data shows that about 380,000 new households formed in the last 12 months. About 1.1 million new households form in a normal year.
While it is great that home builders are confident, it doesn’t mean much if consumer are not feeling the same way. Which is why the most recent Gallup Economic Confidence Index rising for the 5th consecutive week is really good news. Gallup thinks that consumer confidence for 2013 is on track to be at the highest level in 6 years.
Rising Mortgage Rates
As I reported on Friday, both Freddie and the MBA reported that average mortgage rates increased again last week. Home builders are just like home buyers because rising mortgage rates hurt them also. For home builders, rising mortgage rates can create problems for some home buyers which means fewer home sales.
However, there is some good news concerning mortgage rates from the Federal Reserve…
FOMC Minutes and QE
As I said in Monday’s post, we must be concerned about anything the Federal Reserve does or says. Especially regarding Quantitative Easing. Which is why today’s release of the FOMC minutes is so important. For those that need a refresher, Quantitative Easing refers to the Fed buying $85 billion per month in treasury and mortgage-backed securities.
They are doing this to keep long-term interest rates and mortgage rates low and to help the economy recover.The last time the Fed hinted at “tapering” or reducing QE, mortgage rates shot through the roof. Which is why today’s FOMC Minutes are so important…
The Federal Reserve’s Federal Open Market Committee minutes show they are sticking with the current quantitative easing program. Well at least until the economy is stronger and can stand on it’s own without the Fed’s help via QE.
The Fed said:
- Economic activity continued to rise at a moderate pace
- Unemployment still high
- Consumer price inflation continued to be modest
- Recovery in housing continues
So breathe a sigh of relief because all of this means interest rates and mortgage rates should remain low for now.
Another BIG report today came from the Bureau of Labor Statistics. They are reporting that the Consumer Price Index for All Urban Consumers (CPI-U) decreased 0.1% in October 2013 on a seasonally adjusted basis. Over the last 12 months, the all items index increased 1.0% before seasonal adjustment.
Core inflation, or CPI with all food and energy items removed from the index, increased 0.1%. Core inflation has risen 1.7% for the last year and since June 2011 has ranged from 1.6% to 2.3%. Core CPI is one of the Federal Reserve inflation watch numbers and 2.0% per year is their boundary figure.
Check out the chart showing Core CPI:
Existing Home Sales
NAR released their October 2013 Existing Home Sales Report today and they are saying that US home sales are up 6% compared to October 2013. US existing home sales for October 2013 were down 3.2% from September 2013 and this is the biggest month-over-month drop in existing home sales since June 2012.
NAR said the median US home price is up 12.8% from October 2012 and that inventory increased 0.9% from the October 2012 level.
The Take Away
Home builders and consumers are both confident yet existing home sales fell. NAR is pointing to tight inventory but I am not sure that is the only reason. I think the recent increases in mortgage rates are the main culprit.
Since the FOMC minutes indicate no tapering of QE any time soon, it means that mortgage rates should remain at historically low levels.
Which means home buyers can still get a great rate. On the other hand, increasing home prices means buyers should NOT waste any time.
Especially since the low inventory means the best deals are going fast.
Of course, this is BIG picture kind of post. What is right for each buyer depends on their budget, home criteria, and the local market conditions.