The Mortgage Corner
All is still well with residential housing into this new year. Both housing starts and permits exceeded predictions, with starts now at 1.57 annual units, and permits at a 13-year high of 1.551 million units annualized.
Why? Interest rates are plunging to now lows with what looks like a coronavirus pandemic that now effects at least 30 countries, including new cases in S. Korea and Italy. And there are fears it will spread further into Europe and the EU with its open borders.
The totals as of Monday morning are now 79,407 cases and 2,622 deaths, respectively. The DOW Jones is has fallen more than 1,000 points and the 10-year benchmark Treasury yield has dropped more than 20 basis points from its recently stabilized yield to 1.37 percent as investors flee to save-haven bonds to protect themselves. This is causing mortgage rates to fall to new lows, as well.
Conforming mortgage 30-year fixed rates for those with the best credit and incomes, and with all closing costs paid by the lender, have fallen as low as 3.25 percent, and the super-conforming rate of 3.375 percent, which I have never seen in my 30 plus years as a Mortgage Banker.
But won’t a possible pandemic slow housing sales? Not according to the Conference Board’s Index of Leading Economic Indicators (LEI) that has a good record of predicting economic activity six months ahead.
The Conference Board Leading Economic Index® (LEI) for the U.S. increased 0.8 percent in January to 112.1 (2016 = 100), following a 0.3 percent decline in December and a 0.1 percent increase in November, said its press release:
“The strong pickup in the January US LEI was driven by a sharp drop in initial unemployment insurance claims, increasing housing permits, consumers’ outlook on the economy and financial indicators,” said Ataman Ozyildirim, Senior Director of Economic Research at The Conference Board. “The LEI’s six-month growth rate has returned to positive territory, suggesting that the current economic expansion – at about 2 percent – will continue through early 2020. (But) While weakness in manufacturing appears to show signs of softening, the COVID-19 outbreak may impact manufacturing supply chains in the US in the coming months.”
So even the Conference Board is hedging its predictions at bit. But manufacturing is just 10 percent of the U.S. economy these days, so who knows how much such a burgeoning pandemic with affect the U.S., in particular?
We do know that interest rates are plunging to new, historic lows, however. And even the Federal Reserve may be poised to lower their short term interest rates, should the economy show more signs of slowing.
And all of this prospective residential construction is underpinned by the urgent need to supply more housing; so much so that it has jump-started a new YIMBY (Not In My Backyard) movement to build more affordable housing near transportation hubs and city centers.
So we may never have a better time to provide more housing for a growing population. It also signals the demise of suburban sprawl, as we know it. The missing piece in this effort seems to be upgrading transportation networks, as I said last week, which need to be improved to better connect where we live to where we must work, if we want to solve our very serious housing shortage.
Harlan Green © 2020
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