Residential Construction Holding Up

The Mortgage Corner


Calculated Risk

Privately‐owned housing starts in September were at a seasonally adjusted annual rate of 1,256,000. This is 9.4 percent below the revised August estimate of 1,386,000, but is 1.6 percent above the September 2018 rate of 1,236,000, said the US Census Bureau.

Behind the headline is a small gain, to 918,000, for single-family starts. These boost GDP growth per unit than multi-family starts which dropped a very sharp 28.2 percent to 338,000. The three-month average for single-family starts is up very sharply, at 901,000 for the 5th straight increase.

The low mortgage rates are giving increasingly positive signals from the housing sector including a 3 point jump of builders’ optimism in the housing market index to a 71 level for October that easily exceeds economists’ consensus range, says the National Association of Homebuilders (NAHB).


Calculated Risk

Components showing the most strength are present sales and traffic where the index jumped 4 points to 54 for the best reading since early last year. This move offers evidence perhaps that low rates, now under 4 percent for conventional mortgages, are attracting new buyers, something that the housing sector, which has struggled all year to move higher, badly needs. This report will help lift expectations for new home sales and new home permits, as well as existing-home sales.

Total existing-home sales,, completed transactions that include single-family homes, townhomes, condominiums and co-ops, fell 2.2 percent from August to a seasonally adjusted annual rate of 5.38 million in September. Despite the decline, overall sales are up 3.9 percent from a year ago (5.18 million in September 2018).

Lawrence Yun, NAR’s chief economist, said that despite historically low mortgage rates, sales have not commensurately increased, in part due to a low level of new housing options. “We must continue to beat the drum for more inventory,” said Yun, who has called for additional home construction for over a year. “Home prices are rising too rapidly because of the housing shortage, and this lack of inventory is preventing home sales growth potential.”

And lastly, the National Association of Realtors’ housing affordability index is up 12.6 percent YOY as of August, reports Reuter’s ICAP data research site, also a good sign for future trends. This is due to both rising incomes and lower interest rates, while national housing prices have slowed their rise.

“Mortgage applications recently increased 33 percent from a year ago but were down 0.2 percent from July 2019,” says the NAR. “With improving affordability conditions, new home sales increased in August with an increase in housing starts. Homes are currently affordable due to low mortgage rates and because the job market is performing well, but home prices are currently outpacing incomes.”

The Realtors’ Housing Affordability Index calculation assumes a 20 percent down payment and a 25 percent qualifying ratio (principal and interest payment to income).

So a robust housing market could mitigate what is increasingly looking like a looming manufacturing recession, as I said last month. And with the 30-year fixed conforming rate now as low as 3.25 percent for the most creditworthy borrowers, more homebuyers will be eligible, if homebuilders can continue to increase the supply of new homes.

Harlan Green © 2019

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About populareconomicsblog

Harlan Green is editor/publisher of, and content provider of 3 weekly columns to various blogs--Popular Economics Weekly and The Huffington Post
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