Time to kick the week off with another big post covering the latest news for real estate. Plenty of housing or economic news in the last week to cover so let’s dive right in!
Home Builders Not Feeling Confident
In case you missed last week’s post, the latest National Association of Home Builders Wells Fargo Housing Market Index was released one week ago. It came in at a weak reading of 47 in March and this indicates many home builders are not very confident.
Several suggested reasons for the low confidence level was a lack of lots and a shortage of skilled labor. The NAHB also said that rising home prices and mortgage rates as reasons for builders’ conservative outlook.
Housing Starts And Building Permits
Maybe another reason for the low level of confidence among home builders is the latest numbers in the US Commerce Department report on Housing Starts and Building Permits Issued for February 2014. They reported that housing starts for the entire US fell 0.2% in February. This is the 3rd straight month of decreases in housing starts.
Despite the inventory shortage, not as many homes are not being built as you would think.
Kevin Kelly, chairman of the National Association of Home Builders said:
Continuing the January trend and in line with our recent surveys, builders are in a holding pattern.
Holding pattern? That’s a nice way to put it…
I can understand that winter weather creates problems with building and the transport of building supplies. But the weather isn’t the only reason for the weak numbers…
NAHB Chief Economist David Crowe said:
While housing construction is in a recent lull due to unusual weather conditions, we expect to see an improvement as the winter weather pattern subsides and builders prepare for the spring selling season. Competitive mortgage rates, affordable home prices and an improving economy all point to a continuing, gradual strengthening of housing activity through the rest of the year. Moreover, building permits, which are less dependent on weather and are a harbinger of future building activity, rose above 1 million units in February.
I have to agree that is it good news that building permits issued increased from the January level. This is a sign that new home construction will pick up as warmer weather arrives.
However the number of single family permits is at the lowest level since January 2013 but the number of multi-family permits is at the highest level since June of 2008. Does this mean that some builders and investors have given up on seeing growth in demand for single family homes?
NAR Existing Home Sales Index Fell
The National Association of REALTORS® reported a decrease of 0.40% in sales of existing homes in February 2014 from the January 2014 level. This is also 7.1% lower than the level back in February 2013. This is the lowest level since July 2012.
Lawrence Yun, NAR chief economist, said:
We had ongoing unusual weather disruptions across much of the country last month, with the continuing frictions of constrained inventory, restrictive mortgage lending standards and housing affordability less favorable than a year ago. Some transactions are simply being delayed, so there should be some improvement in the months ahead. With an expected pickup in job creation, home sales should trend up modestly over the course of the year.
Again we hear the weather as being blamed for the weak sales. As we enter into the traditionally hotter home selling months of the Spring and Summer, it should be interesting to see what happens.
One interesting tidbit in the NAR report is that distressed homes (foreclosures and short sales) made up 16% of the February 2014 sales. Compared that to the 25% we saw back in February 2013. To me, this is a very positive sign for the housing market.
Fewer foreclosures means fewer people losing their homes. Which means the economy is getting stronger.
We are still seeing a high percentage of all cash sales as NAR reported that 35% of February 2014 sales were all cash. Not all of the cash sales were investors though since NAR said individual investors only made 21% of the home purchases in February 2014.
The US median existing-home price for all housing types in February was $189,000, which is 9.1% higher than the level in February 2013. We can be glad that despite the falling sales volume, home prices still increased. However, the increase in prices may be due to inventory still being low.
In the South, existing-home sales rose 1.5% but are 0.5% below February 2013. The median price in the South was $163,400, up 8.3% from a year ago.
The Fed Speaks
I touched briefly on the fall out from the latest FOMC minutes in Friday’s Mortgage Rate Update. More or less, the Fed said they are cutting another $10 billion from the Quantitative Easing program. The Fed will now purchase $55 billion monthly in mortgage-backed securities and treasury bonds as compared to its original level of $85 billion monthly.
As usual, Wall Street freaked out and mortgage rates did start rising almost immediately afterwards.
The Fed is going to scrap their benchmark of a 6.50% national unemployment rate. Instead, the Fed said they will review a wide range of economic indicators before changing monetary policy. Not sure if a Magic Eight Ball is one of those economic indicators…
The thing that probably got Wall Street to flip out was the press conference of Janet Yellen, Fed Chair. She said that the Fed may consider rising short-term interest rates a few months before its original target of October to December of 2015.
Most of the average mortgage rates dropped last week. However, these reports were drawn up BEFORE the Fed’s announcement and the subsequent freak out by Wall Street. Like I said, mortgage rates rose sharply after the Federal Reserve’s announcement.
After the Fed spoke, conforming 30-year fixed rate mortgage rates moved to a 7-week high and FHA mortgage rates climbed, too. This week, mortgage rates may rise even more.
The DOL said:
In the week ending March 15, the advance figure for seasonally adjusted initial claims was 320,000, an increase of 5,000 from the previous week’s unrevised figure of 315,000.
A healthy housing market needs healthy employment numbers. So last week’scraptacular Jobless Claims report from the US Department of Labor is something to concern us.
We got the latest data on consumer prices from the Bureau of Labor Statistics (BLS), prices on expenditures made by urban consumers increased 1.1% before seasonal adjustments over the past twelve months. Consumer prices increased in February by 0.1% on a seasonally adjusted month-over-month basis.
The Core CPI, which excludes more volatile food and energy prices, rose by 0.1% month-over-month. Over the past twelve months Core CPI increased by 1.6%.
Conference Board Leading Economic Index Increases
Good news! The Conference Board Leading Economic Index for the U.S. increased 0.5% in February 2014.
Ataman Ozyildirim, Economist at The Conference Board said:
The U.S. LEI increased sharply in February, suggesting that any weather-related volatility will be short lived and the economy should continue to improve into the second half of the year.
Ken Goldstein, Economist at The Conference Board said:
While the CEI shows the pace of economic activity remained slow at the start of 2014, the trend in the LEI remains quite positive.
I hope they are right. I am starting to feel that unless something totally unseen bad thing happens, we could see 2014 turn out to be a block buster year for the economy. Which should translate into a great year for real estate.
DeMarco Leaving FHFA
Wow. Earlier today I read that Edward DeMarco is leaving FHFA. Just have to wonder how long until he goes to work at Zillow…
No but seriously. The FHFA oversees Freddie Mac and Fannie Mae and DeMarco was put in charge as Acting Director back in 2009. I am sure his departure will make some people happy since he refused to let Fannie Mae and Freddie Mac reduce the mortgages of people who are underwater on their mortgages.
Lots of stuff to watch this coming week:
- Case-Shiller Home Price Index
- FHFA Home Price Indexes for January
- New Home Sales
- NAR Pending Home Sales
- Mortgage Rate Reports from Freddie Mac and the MBA
- The Conference Board Consumer Confidence Index
- Reuter’s/University of Michigan’s Consumer sentiment index
- Unemployment Claims
I am sure I forgot something but if it is real estate, housing or economic news, you know I will write about it!