Housing Starts Bode Well For US Economy

The highest number of single family homes were started in December, 2014 in almost seven years; this fueled an unexpectedly large gain in U.S. housing starts that signals construction will contribute more to economic growth in 2015.

Housing starts climbed 4.4 percent to a 1.09 million pace; this rate is for total housing starts, including apartments.  Work began on 728,000 houses at an annual rate, a 7.2 percent increase from November and the most since March 2008, a Commerce Department report showed Wednesday in Washington.

This improvement in single-family construction signals the industry is beginning to focus on the biggest part of the market, perhaps encouraged by gains in employment and consumer confidence that make Americans more likely to marry and have children. Historically, factors such as low borrowing costs and more access to credit would raise the odds that a household will decide to buy a property rather than rent.

“The strength is where you’d like to see it, in single-family housing,” said Brian Jones, a senior U.S. economist at Societe Generale in New York, who predicted forecast starts would rise to 1.07 million. “It bodes well for residential real estate. It’s another thing going in the right direction for the economy.”  Single-family projects in 2014 made up the smallest share of total housing starts since 1985.

Survey Results

The median forecast of 82 economists surveyed by Bloomberg projected total housing starts would rise to a 1.04 million pace in December. Estimates ranged from 950,000 to 1.1 million. The November reading was revised up to a 1.04 million rate from a previously reported 1.03 million.

Permits (NHSPATOT), a proxy for future construction, declined 1.9 percent in December to a 1.03 million pace. They were depressed by a setback in multifamily projects, which can be volatile from month to month. Applications for single-family homes increased to a seven-year high.

Builders began work on 1.01 million homes in 2014, the most since 2007. The construction boom peaked at a three-decade high of 2.07 million in 2005, before plunging to a record-low 554,000 in 2009.

The rebound in residential real-estate since the recession has been mainly driven by gains in multifamily projects, including apartment buildings, as Americans soured on homeownership and opted to rent instead. A more solid recovery in construction of single-family homes would signal the industry is on sounder footing.

The Re-entrance of Millennials Buying Real Estate

The housing market continued to stabilize, even as 2014 rounded out and as leases came due for the next year’s renewal, Zillow predicted that the under-35 set will be running the real estate buying show this year.

Dr. Stan Humphries, Zillow Chief Economist, explained: “Roughly 42 percent of Millennials say they want to buy a home in the next one to five years, compared to just 31 percent of Generation X, and by the end of 2015 Millennials will become the largest home-buying age group. The lack of home-buying activity from Millennials thus far is decidedly not because this generation isn’t interested in homeownership, but instead because younger Americans have been delaying getting married and having children, two key drivers in the decision to buy that first home. As this generation matures, they will become a home-buying force to be reckoned with.”

Realtor.com agrees with this assessment, as their 2015 Housing Forecast shows:

“Households headed by Millennials will see significant growth as a reflection of economic gains. Millennials will also drive two-thirds of household formations over the next five years. Next year’s addition of 2.75 million jobs and increased household formation will be the two key factors driving first-time buyer sales.”

Looking to Buy a House in 2015?

Whether you are in the under-35 Millennial set or just looking to move in 2015, the stable housing market coupled with the increase in potential home buyers means that home prices will continue to rise. If the predictions come to pass, it will become a seller’s market during the course of the year, as supply and demand converge.

If you are getting your house ready to sell, take some time to meet with your local mortgage banker and get pre-approved. You will need to know the facts about how much house you will qualify for based the projected sales price of your current home. Also, meet with a local real estate agent and get the nitty gritty on your neighborhood for home sales and the region you intend to move.  We can connect you with great agents – contact us today!

Use the winter weather as an excuse to assess if your home could use a little TLC before you put it on the market – focus on the kitchen, bathrooms and conditions of your walls first and foremost. With a little preemptive effort on your part now, you can sell quickly and move on your dream home early in the year before the feeding frenzy begins in earnest.

 

Time to Fall into Buying a Home?

 

As we head into fall, families are getting back into the routine of school, projects and after school activities. Fall is also considered to be the “off-season” to buy a home. Spring and summer rule this trend, but there are several reasons why if you are in the market to buy a home in the near future, as the weather cools, buying now makes sense.

Increasing Mortgage Rates

While the reports are conflicting depending on your source, interest rates for 30-year fixed-rate mortgages are predicted to begin to rise as 2014 comes to a close. It is assumed that an increase of a full-percentage could be expected by the end of 2015.

Your monthly mortgage payment is directly impacted by the mortgage rates available. Waiting to begin the process only increases your chances of a higher interest rate, and a higher mortgage payment.

Rising Home Prices

With the continued stabilization of the housing market comes the potential for higher home prices. At present, we are looking at a seller’s market, where chances of getting a good dollar for a home for sale are much more possible than previous years. The Home Price Expectation Survey, which polls some of the most distinguished economists and strategists in the industry, projects an increase in home values over the next five years between 11.2% and 27.8%.

Simply put, that $100,000 property could be going for $125,000 in the next few years. Do you want to add $25,000 to your mortgage payments just for waiting?

What Better Time than the Present?

Considering the two criteria that make up the cost of a home, the mortgage rate and the price of the home, are both looking to increase in the near future for an undetermined length of time, the fact is, the longer you wait to begin looking for a home the more costly it is going to be for you.

You want the best home your budget can afford, for you and your family. At the very least, now is the time to speak to a local real estate agent and mortgage banker, to find out the costs of homes in your area and the mortgage rates available to you. Get the information you need to put your strategy to buy a new home in motion today.

 

Builder Confidence – Highest Level Since November, 2005

A latest four-point gain brings the National Association of Home Builders/Wells Fargo Housing Market Index (HMI) index released today to its highest reading since November, 2005.  Builder confidence in the market for newly built, single-family homes rose for a fourth consecutive month in September to a level of 59 on the HMI index.

“Since early summer, builders in many markets across the nation have been reporting that buyer interest and traffic have picked up, which is a positive sign that the housing market is moving in the right direction,” said NAHB Chairman Kevin Kelly, a home builder and developer from Wilmington, Delaware.

“While a firming job market is helping to unleash pent-up demand for new homes and contributing to a gradual, upward trend in builder confidence, we are still not seeing much activity from first-time homebuyers,” said NAHB Chief Economist David Crowe. “Other factors impeding the pace of the housing recovery include persistently tight credit conditions for consumers and rising costs for materials, lots and labor.”

Derived from a monthly survey that NAHB has been conducting for 30 years, the NAHB/Wells Fargo Housing Market Index gauges builder perceptions of current single-family home sales and sales expectations for the next six months as “good,” “fair” or “poor.” The survey also asks builders to rate traffic of prospective buyers as “high to very high,” “average” or “low to very low.”

Scores from each component are then used to calculate a seasonally adjusted index where any number over 50 indicates that more builders view conditions as good than poor.

All three HMI components posted gains in September. The indices gauging current sales conditions and traffic of prospective buyers each rose five points to 63 and 47, respectively. The index gauging expectations for future sales increased two points to 67.

Builder confidence also rose across every region of the country in September. Looking at the three-month moving average for each region, the Midwest registered a five-point gain to 59, the South posted a four-point increase to 56, the Northeast recorded a three-point gain to 41 and the West posted a two-point increase to 58.

 

Where’s the Housing Market Headed?

Despite the spring buying season being in full bloom and mortgage rates at lows not seen in almost a year, mortgage application volume barely budged last week.  The Mortgage Bankers Association reported that its Market Composite Index, a measure of total loan application volume, rose by 0.9% in the latest week, while the refinance index increased 4%. The purchase index fell by 3%.

Zillow reported today that the national negative equity rate fell to 18.8% in the first quarter of 2014, meaning more is owed on the home than it is currently worth. In Q4 of 2013, negative equity stood at 19.4%. Zillow said that negative equity tends to limit inventory, which pushes home values higher, which in turn makes those homes that are available, that much less affordable.

Government controlled mortgage finance giant Fannie Mae said today that it has cut its outlook for home sales in 2014, as well as 2015. The move comes after markets for new and existing homes experienced weakness in the first quarter. Fannie is now forecasting that existing home sales will hit 4.98 million this year, down from the 5.04 million originally projected. Single family homes are forecasted to see sales of 476,000 this year, down from 494,000.

The Economy

 

Good News for the Job Market

The job markets received good news this morning after it was reported that job growth in December was better than expected.  ADP announced that private employers added 238,000 new jobs in December, above the 203,000 that was expected.  The gains were broad based across all industries with heavy concentrations in construction and manufacturing.

Mortgage Loan Applications Increase

The Mortgage Bankers Association reported this morning that its Market Composite Index, a measure of total loan application volume, rose by 2.6% in the latest week.  It was the first increase in a month.  The refinance index rose by 5% while the purchase index declined by 1%.  The refinance portion of mortgage activity was 63% of total applications.

New Home Construction Costs Increase

The National Association of Home Builders reported yesterday that newly built single family homes are getting bigger, more expensive to build and costlier for the buyer.  The cost to build a single family home in 2013 was $246,453, the highest since 1998.  The price of a new constructed home rose by 25% in 2013 to $399.532.

Unemployment Benefits Decline

Unemployment Benefits Decline in Latest Week

The Labor Department reported today that the number of Americans across the nation that applied for unemployment benefits declined in the latest week. Weekly Initial Jobless Claims fell by 21,000 to 323,000, below the 333,000 that was expected. It was the lowest level since late September, but the numbers could be skewed by the Veteran’s Day holiday and claims could inch up next week.

Inflation at Wholesale Level Remains Tame

Inflation at the wholesale level remained tame in October as costs were led lower by declining energy prices.  The Producer Price Index fell by -0.2% in October, below the -0.1% expected. Within the report it showed that food costs jumped by 0.8%, the biggest increase since March.

Manufacturing Activity in Philadelphia region Declined

Manufacturing activity in the Philadelphia region declined in November from the preceding months. The Philadelphia Fed Index fell to 6.5 from the 19.8 recorded in October and below the 11.9 that was expected, though positive for six consecutive months. The surveys broadest indicators, for general activity, new orders, shipments and employment were positive, but did slip from the October levels.  However, the lower costs don’t always filter down to the consumer as companies raise and lower prices for various reasons.

 

Market Update

Weekly State Unemployment Claims Fell

The Labor Department reported this morning that weekly state unemployment claims fell by 2,000 in the latest week to 339,000 and above the 330,000 expected.  The four week moving average, which irons out any seasonal abnormalities, fell by 5,750 to 344,000.  The labor markets are being weighed down by lackluster domestic demand for goods and services.

US Productivity Rose in the Third Quarter

In a separate report, U.S. Productivity rose in the third quarter by 1.9% from the 1.8% in Q2.  Gains in productivity could dissuade companies from ramping up hiring; productivity measures the amount of output per hours worked. In the latest Gross Domestic Product report, consumer spending was at a three year low, so employers will have to raise employee efficiency in an effort to strengthen profits.

US Continues to be Largest Oil-Consuming Nation

For the first time since 1995, the U.S. has produced more oil than it has imported due to a surge in domestic shale output and relatively flat demand, the U.S. Energy Information Administration (EIA) said this week.  The EIA said the trend should continue as oil supplies grow while reliance on imports eases.  The U.S. continues to be the world’s largest oil-consuming nation.

Twitter IPO Countdown

The Countdown is on for Twitter IPO

The long awaited Initial Public Offering (IPO) of Twitter will debut this week as the company intends to raise between $1.6 billion to $1.8 billion when the stock opens for trading.  The price is now set between $23 and $25 a share, up from $17 to $20 previously.  Twitter will sell 70 million shares in its IPO and will value the company at around $12.8 billion to $13.9 billion.  The shares are expected to trade for the first time on Thursday.

No Consequential Economic Data Points Today

There were no economic data points today of any consequence, but reports pick up towards the end of this week.  The government will release the delayed October Jobs report on Friday; the report is expected to show employers added 100,000 jobs. The Unemployment Rate is estimated to tick up slightly to 7.3% from 7.2%.

Why are Financial Firms Cutting Jobs?

Due to a slowdown in the mortgage business, the muddling economy and the surge in online banking, financial firms across the U.S. have announced cutting tens of thousands of jobs since the beginning of the year. Outplacement firm Challenger, Gray & Christmas said that 49,000 workers have been let go or will be laid off in the near future.  In the months of  August and September, there were 13,100 layoffs announced.

 

Abundance of Economic Data

Economic data was abundant today and the members of the Federal Reserve closely scrutinized the numbers as the Federal Open Market Committee meeting gets underway today on Capitol Hill.  The members will discuss the U.S. economy and will most likely hold off on tapering its current Quantitative Easing Program dubbed QE III.

Retail Sales fell in September for the first time in six months, but the decline could be attributed to a decline in auto sales.  Sales fell by 0.1% and were inline with estimates but when stripping out autos, sales actually rose by 0.4%, double the 0.2% expected.  The Commerce Department said there were fewer weekend shopping days in September coupled with a short supply of some popular models.

Over in housing, the Case Shiller 20-city Index year-over-year rose by 12.8% in August, above the 12.4% expected and above the 12.3% recorded in July; it was the fastest year-over-year gain since February 2006.  However, prices gains are beginning to slow in many cities, a signal that the big gains may have peaked.  The Conference Board reported that Consumer Confidence in October slowed as the effects of the government shutdown and debt ceiling issues took hold of the economy.  The Index fell to 71.2 in October, below the 73.1 expected and down from the 80.2 recorded in September.  A spokesperson for the Conference Board said, “Confidence is likely to remain volatile for the next several months.”