Wednesday, May 26, 2010

Builder Optimism Up

The Mortgage Corner

Builder confidence in the market for newly built, single-family homes rose for a second consecutive month in May to its highest level in more than two years, according to the latest National Association of Home Builders/Wells Fargo Housing Market Index (HMI). The HMI gained three points to 22 in May, its highest point since August of 2007.

A major reason may be the highest affordability level in years. Nationwide housing, bolstered by favorable interest rates and low house prices, hovered for the fifth consecutive quarter near its highest level of affordability since the series was first compiled 19 years ago, according to the National Association of Home Builders Housing Opportunity Index (HOI).

The HOI showed that 72.2 percent of all new and existing homes sold in the first quarter of 2010 were affordable to families earning the national median income of $63,800, slightly higher than the previous quarter and near the record-high 72.5 percent set during the first quarter a year ago.

“Builders surveyed for the HMI at the beginning of May were undoubtedly reacting to the heightened consumer interest they had just witnessed as the deadline for home buyer tax credits arrived at the end of April,” said Bob Jones, Chairman of the National Association of Home Builders (NAHB). “Builders are also hopeful that the solid momentum that the tax credits initiated will continue even now that those incentives are gone.”


Total housing starts were at 672,000 (SAAR) in April, up 5.8 percent from the revised March rate, and up 41 percent from the all time record low in April 2009 of 477,000 (the lowest level since the Census Bureau began tracking housing starts in 1959). Single-family starts were at 593,000 (SAAR) in April, up 10.2 percent from the revised February rate, and 65 percent above the record low in January 2009 (360,000).


The expiration of second-round housing stimulus pulled home sales into March and April at the very heavy expense of May, according to the Mortgage Bankers Association. Its mortgage purchase loan index plunged 27.1 percent in the May 14 week on top of the 9.5 percent plunge in the May 7 week to pull the index to its lowest level since 1997. These results point to very weak home sales for this month and a new weight on home prices.

But record low mortgage rates did give a big boost to refinance applications which jumped 14.5 percent. Mortgage rates, being pulled lower by safe-haven demand for U.S. Treasuries, are at their lowest level since November last year with 30-year loans down 13 basis points in the week to an average 4.83 percent.

Wider refinancing will help keep homeowners out of foreclosure and will limit distressed sales, but the purchase results point squarely to new risk for the housing sector and will raise talk for a third round of housing stimulus, says Calculated Risk.

Harlan Green © 2010

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