The Mortgage Corner
Housing starts surged 25.5 percent in October to a 1.323 million annualized rate. This is the best rate of the cycle since August 2007 with the monthly percentage gain the strongest since 1982, says Econoday. It and other recent good news, such as much higher retail sales, could mean something like a 4 percent GDP growth rate in Q4 this year.
But we still have a housing shortage. The jump reflects a 10.7 percent rise to an 869,000 rate for the report’s key component, single-family homes which follows an 8.4 percent surge in September. And multi-family homes snapped back from September’s odd 39 percent decline, rising 69 percent in October to a 454,000 rate, which should mitigate surging rental prices.
Actual sales of new homes have also been trending higher all year and would be higher still if not for the lack of supply. The surge in mortgage rates which jumped 18 basis points in the November 11 week to 3.95 percent (for conforming loans $417,500 or less) could begin to restrict sales, however. New home sales for October, which will not have been affected by November’s jump in mortgage rates, will be one of the coming week’s highlights (released Wednesday, November 23).
This is while October existing home sales jumped 2.0 percent to an annualized rate of 5.6 million. September’s sales were revised slightly higher to an annualized rate of 5.490 million from 5.470 million. On the year, sales were up 5.9 percent from the same month a year ago. October sales were the highest since February 2007, which could be due to buyers rushing in ahead of a well-publicized, possible Federal Reserve decision to raise short-term rates in December.
So how can we mitigate the shortage of available workers and land that is holding back home sales? NAR chief economist Lawrence Yun mused in a recent Forbes article how the Donald Trump Presidency might affect housing over the next 4 years..
“There could be less regulatory land-use and zoning burden for home construction, and thereby lower the cost of building,” says Dr. Yun. “In recent years, newly constructed home prices have been much higher than existing home prices. Homebuilders say that is due to all the extra cost of regulation and not necessarily from higher input cost of lumber, cement, and worker wages.”
And, mortgage standards are too strict, which is restricting first-time homebuyers, in particular that used to be 40 percent of existing-home sales. So Fannie Mae and Freddie Mac, the main guarantors for conventional mortgages, should continue to be supported in some way.
“Washington’s instinct is to eliminate Fannie and Freddie because of their past sins from past managers,” says Yun, “then mortgages will be much more expensive with 30-year fixed rate products disappearing from the market place. We should view supporting Fannie and Freddie in the same way as we view supporting FDIC deposit government guarantee at banks – to help smooth the financial market.”
“Multifamily production bounced back after an unusually weak reading last month while single-family starts exhibited unusually strong growth as well,” said NAHB Chief Economist Robert Dietz. “Though October’s single- and multifamily production rates are clearly unsustainable, we expect continued growth in the housing sector in the months ahead.”
But home supply was down 0.5 percent to 2.02 million or a 4.3 month’s supply in October. We are still not building enough homes, in other words, which is why housing prices continue to rise faster than inflation, and there are fewer affordable, entry-level homes.
Harlan Green © 2016
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