Wednesday, February 18, 2015

Housing Starts, Builder Optimism Dips

The Mortgage Corner

Nationwide housing starts fell 2 percent to a seasonally adjusted annual rate of 1.065 million units in January, according to newly released data from the U.S. Commerce Department. This drop was mainly due to a 22.2 percent decrease in the Midwest, hit hard by winter weather.

And home builders’ sentiment also fell slightly from 57 to 55 percent, meaning a majority of those surveyed are optimistic that 2015 will be a good year for housing construction.


Graph: Calculated Risk

Single-family housing production fell 6.7 percent to a seasonally adjusted annual rate of 678,000 in January while multifamily starts rose 7.5 percent to 387,000 units. This is 2.0 percent below the revised December estimate of 1,087,000, but is 18.7 percent above the January 2014 rate of 897,000.

"After a strong single-family report in December, it is not surprising to see some pull back in January," said NAHB Chief Economist David Crowe. "With continued job creation and a growing economy, single-family production should make gains in the year ahead."


Graph: Calculated Risk

Though builder sentiment dipped, it was very good for a winter report.
“For the past eight months, confidence levels have held in the mid- to upper 50s range, which is consistent with a modest, ongoing recovery,” said NAHB Chief Economist David Crowe. “Solid job growth, affordable home prices and historically low mortgage rates should help unleash growing pent-up demand and keep the housing market moving forward in the year ahead.”

So what does this say about housing in 2015? The Fed’s FOMC minutes were just released, and it looks like they might not be ready to raise interest rates in the middle of 2015, as had been hinted by several of the Fed Governors.

“In connection with the risks associated with an early start to policy normalization, many participants observed that a premature increase in rates might damp the apparent solid recovery in real activity and labor market conditions, undermining progress toward the Committee's objectives of maximum employment and 2 percent inflation,” said the minutes. “In addition, an earlier tightening would increase the likelihood that the Committee might be forced by adverse economic outcomes to return the federal funds rate to its effective lower bound.”

Why is the Fed becoming more dovish viz interest rates? The Producer Price Index for wholesale prices is hovering perilously close to deflation. The PPI — a good proxy for wholesale costs — fell a record 0.8 percent in January on a seasonally adjusted basis, the Labor Department said today. It was the third decline in a row and the fifth in the past six months.

This is big news, folks, and could mean mortgage rates would remain low much longer than originally projected.

Harlan Green © 2015

Follow Harlan Green on Twitter:

No comments: