Lee Morof's Real Estate Blog

The first week of 2016 was quiet concerning housing and mortgage related news, but reports on construction spending and several labor-related reports were released. Construction spending is connected to housing markets as it provides evidence of builder confidence and also future housing supply. Labor market trends provide a sense of economic performance in general and can influence potential buyers on decisions about buying or not buying homes.

Construction Spending Dips in November

According to the Commerce Department, construction spending dropped by 0.40 percent in November to a seasonally adjusted annual reading of $1.12 trillion. November’s reading was short of the expected reading of 0.90 percent, which was based on October’s original reading of a 1.00 percent increase in construction spending. October’s reading was later revised downward to 0.30 percent. November’s construction spending was 10.50 percent higher year-over-year.

While private construction spending decreased by 0.20 percent in November, it was up 12.10 percent year-over-year due to housing construction. Housing markets have been squeezed due to consistently short supplies of available homes. New construction is seen as an important way to ease the bottleneck as buyers sit on the sidelines waiting for homes to come on the market.

Residential construction was up 0.30 percent in November and increased 10.80 percent year-over-year.

Mortgage Rates Mixed, Weekly Jobless Claims Lower

Freddie Mac reported mixed results for mortgage rates. The average rate for a 30-year fixed rate mortgage dropped four basis points to 3.97 percent; the average rate for a 15-year fixed rate mortgage rose two basis points to 3.26 percent and the average rate for a 5/1 adjustable rate mortgage rose by one basis point to 3.09 percent. Last week’s discount points averaged 0.60 percent for 30-year fixed rate mortgages, 0.50 percent for 15 year fixed rate mortgages and 0.40 percent for 5/1 adjustable rate mortgages.

New weekly jobless claims fell to 277,000 as compared to expectations of 275.000 and the prior week’s reading of 287,000 first-time claims. Fewer first-time claims for jobless benefits point to stronger economic conditions in general as evidenced by expanding job markets. National unemployment held steady 5.00 percent, which mirrored expectations and the same as November’s reading.

Labor Department: 292,000 New Jobs Added in December

According to the Labor Department, 292,000 new jobs were added in December, which resulted in the fifth consecutive year where jobs grew by 2 million or more year-over-year. Upward revisions to jobs reports for October and November supported stronger economic conditions. October’s reading was adjusted from 298,000 new jobs to 307,000 new jobs; November’s original reading for new jobs was raised from 211,000 jobs added to 252.000 jobs added.

Last week’s positive jobs reports were released against a backdrop of market volatility due to fears that the Chinese economy is slowing. As the second largest global economy, China’s economy could influence global financial markets and economic conditions if it experiences serious difficulties.

What’s Ahead

This week’s scheduled economic releases include reports on job openings, retail sales and the Federal Reserve’s Beige Book. In addition to reports on mortgage rates and new jobless claims, a reading on consumer sentiment will round out this week’s news.

Last week’s economic events included reports the National Association of Home Builders Housing Market Index, Housing Starts and the release of minutes for the most recent meeting of the Fed’s Federal Open Market Committee. The details:

NAHB: Builder Confidence in Housing Markets Dips

The National Association of Home Builders reported that builder confidence dropped to a reading of 62 as compared to October’s revised reading of 65. Any NAHB reading above 50 indicates that more builders are positive about market conditions than not. NAHB’s assessment of housing market conditions is based on readings for three aspects of current and future market conditions. November’s reading of 67 for current housing market conditions was three points lower than October’s reading of 70. Expectations for market conditions for sales of single family homes over the next six months fell by five points in November to a reading of 70. Builders’ sentiment about prospective buyer foot traffic in new single family developments rose by one point to 48.

Home builders started more new homes than at any time since September 2007; analysts cited wage growth and low unemployment figures along with high demand for homes as driving builder confidence in housing markets. Demand for homes continued to exceed homes available for purchase, which is a driving force for builder confidence.

NAHB Regional Builder Confidence Readings 

Regional readings provide a snapshot of regional housing market conditions on a month-to-month bases and on a three month rolling average. The monthly readings for November were lower except for the Western region, which gained one point for a reading of 77. The Northeastern region held steady with a reading of 52; the Midwest’s reading also decreased by one point to 59 and builder confidence in the Southern region fell by five points to 62.

Monthly regional readings for home builder confidence can be volatile due to regional economic conditions; the NAHB provides a three-month rolling average for its four U.S. regions. In November, the Northeast region reported a reading of 50 which was three points higher than October’s reading. The Midwest region was unchanged from October’s reading of 60; the South also reported no change from its October reading of 65. The Western region posted an increase of 69 to 73 over the three months between August and November.

Housing Starts Lowest Since Spring Floods

According to the Commerce Department, housing starts fell by 11 percent to an annualized reading of 1.06 million in October. This was the lowest reading since last spring, when construction was adversely impacted by flooding. September’s reading was adjusted to 1.19 million starts. Meanwhile, building permits issued rose by 4.10 percent to an annual rate of 1.15 million starts in October.

While housing starts fell by 18.60 percent in the South, permits issued rose to their highest level since 2007. The South is the most active region for home construction and accounts for half of all new home construction in the U.S.

Mortgage Rates, New Jobless Claims Lower

Mortgage rates fell across the board last week according to Freddie Mac. The average rate for a 30-year fixed rate mortgage fell by one basis point to 3.97 percent; the average rate for a 15-year fixed rate mortgage fell two basis points to 3.18 percent and the average rate for a 5/1 adjustable rate mortgage was five basis points lower at 3.03 percent. Discount points averaged 0.60 percent for a 30-year fixed rate mortgage and 0.50 percent for 15-year fixed rate mortgages and 5/1 adjustable rate mortgages.

New jobless claims also fell last week to a reading of 271,000 new claims filed as compared to expectations of 270,000 new claims filed and the prior week’s reading of 276,000 new claims filed. Lower jobless claims indicate further strengthening of labor markets, but seasonal hiring may have positively impacted the reading for new jobless claims.

What’s Ahead

Next week’s scheduled economic news releases include several housing reports. Existing Home Sales, the S&P Case-Shiller Housing Market Index, FHFA House Prices and New Home Sales will be posted along with regularly scheduled reports on mortgage rates and new jobless claims. There will be no economic reports released on Thursday or Friday due to the Thanksgiving holiday.

Last week’s economic news included National Association of Home Builders / Wells Fargo (NAHB) Housing Market Index and Commerce Department reports on Housing Starts and Building Permits, the post-meeting statement of the Fed’s Federal Open Market Committee (FOMC), and Fed Chair Janet Yellen’s scheduled press conference.

NAHB: Home Builder Confidence Hits 9 Month High

Home builder confidence in housing market conditions is growing in spite of a planned merger between two builders and related cost-cutting efforts. According to the NAHB’s the home builder index posted a reading of 59 in June as compared to an expected reading of 55 and May’s reading of 54. Any reading over 50 indicates that more builders are confident about housing markets than those who are not. June’s reading was the 12^th consecutive month for readings above 50.

The NAHB index is composed of three assessments of market conditions. The reading for current market conditions was seven points higher at 65; builder confidence in current market conditions rose by 6 points for a reading of 69 and the reading for buyer traffic in new single-family housing developments rose five points to a reading of 44.

Regional results for builder confidence were also positive, with three of four regions posting gains in the three-month rolling average of builder confidence. The South posted a gain of three points to a reading of 60; the Northeast region also gained three points for a reading of 44. The West gained two points for a reading of 57 and the Midwest’s reading dropped by one point to 54.

Housing Starts Drop, Building Permits Increase

According to the Commerce Department, Housing starts fell in May while building permits rose. The reading of 1.04 million housing starts was lower than the expected number of 1.08 million starts and April’s reading of 1.17 million housing starts. Analysts note that apartment construction is heating up as fewer families are buying homes. Tight lending standards and concerns about stable job markets continue to keep would-be home buyers from buying homes.

Building permits in May rose from April’s reading of 1.14 million to 1.28 million permits issued. This report includes all types of building permits. David Crowe, chief economist for the National Association of Home Builders noted that the demand for rental units in large metro areas was fueling the pace of permits for multi-family housing.

Fed: No Date Set for Rate Hike; Analysts Predict Rate to Rise in Fall

The Federal Reserve’s FOMC statement and Fed Chair Janet Yellen’s press conference did not provide a date for raising the target federal funds rate, but suggested that most members approved of a rate hike before year-end. While Chair Yellen characterized a rate hike as positive in terms of providing better yields on savings accounts, a rate hike would also lead to higher rates for consumer loans and mortgages.

Mortgage Rates, Jobless Claims Lower

Weekly jobless claims fell to 267,000 new claims filed, a reading much lower than expectations of 275,000 new claims filed and the prior week’s reading of 279,000 new jobless claims filed. Analysts said that the lower reading indicates a healthier labor market.

Mortgage rates fell across the board last week. Freddie Mac reported that the average rate for a 30-year fixed rate mortgage fell by four basis points to 4.00 percent; the average rate for a 15-year fixed rate mortgage fell by two basis points to 3.23 percent and the average rate for a 5/1 adjustable rate mortgage dropped one basis point to an average rate of 3.01 percent. Average discount points were 0.70 percent for a 30-year fixed rate mortgage, 0.50 percent for a 15 year mortgage and 0.04 percent for a 5/1 adjustable rate mortgage.

What’s Ahead

This week’s scheduled economic news includes reports on new and existing home sales and FHFA’s monthly home price report. Reports on consumer spending and consumer sentiment will also be released along with Freddie Mac’s mortgage rates survey and weekly jobless claims.

Retail Sales, Consumer Confidence Up

Retail sales rose for the third consecutive month. May sales increased at a seasonally adjusted rate of 1.20 percent according to Commerce Department data. Auto and gasoline sales led the charge to higher retail sales, but analysts said that most retail sectors posted gains. Upward revisions of March and April’s retail sales provided evidence of stronger economic conditions.

Consumer sentiment jumped nearly four points from May’s reading of 90.7 to 94.6 in June. This appears to be great news compared to the year before the recession, when consumer sentiment averaged a reading of 86.9.

Weekly Jobless Claims, Mortgage Rates

Weekly jobless claims rose last week and were also higher than expected. 279,000 new jobless claims were filed against an expected reading of 275,000 new claims and the prior week’s reading of 277,000 new jobless claims. This was the fourteenth consecutive week that new jobless claims remained below 300,000, an accomplishment that hasn’t occurred in 15 years.

Mortgage rates rose sharply last week according to Freddie Mac. The average rate for a 30-year fixed rate mortgage jumped from 3.87 percent to 4.04 percent; the average rate for a 15-year fixed-rate mortgage rose from 2.08 percent to 3.25 percent and the average rate for a 5/1 adjustable rate mortgage increased by five basis points from 2.96 percent 3.01 percent. Average readings for discount points were 0.60 percent for 30 and 15 year mortgages and 0.40 percent for 5/1 adjustable rate mortgages. Higher mortgage rates may sideline some home buyers as they wait to see if rates will drop or are priced out of the market. Expectations that the Fed will raise its target federal funds rate this fall may be fueling higher rates.

What’s Ahead

Next week’s economic news schedule includes more housing-related readings. The National Association of Home Builders Housing Market Index, the Commerce Department’s reports on Housing Starts and Building Permits along with the weekly reports on new Jobless Claims and Freddie Mac’s mortgage reports are set for release. On Wednesday, the Federal Open Market Committee of the Federal Reserve will release its post-meeting statement and Fed Chair Janet Yellen will also give a press conference. These events are important as they may shed light on the Fed’s intentions for raising rates. When the Fed raises the target federal funds rate, mortgage rates and interest rates for consumer credit are expected to rise as well.

Last week’s economic news included reports on construction spending, Freddie Mac’s mortgage rates survey and several employment related reports. The details:

Construction Spending Jumps

The Commerce Department reported that construction spending reached its fastest annual pace since November 2008. Most of the momentum was caused by construction of apartments, commercial projects and roads, and construction of single family homes. Builders spent 2.20 percent more in April than they did in March, which equated to an annual outlay of $1.01 trillion for all types of construction spending. Analysts said that increased spending in construction indicated that the housing sector could see improvement as construction provides more jobs.

Mortgage Rates Mixed

Freddie Mac’s weekly survey of mortgage rates reported that average mortgage rates were mixed last week. Average rates were reported as follows: 30-year fixed rates were unchanged at 3.87 percent with discount points also unchanged at 0.60 percent. The average rate for a 15-year fixed rate mortgage fell from 3.11 percent to 3.08 percent with discount points unchanged at an average of 0.50 percent. The average rate for a 5/1 adjustable rate mortgage rose by six basis points to 2.96 percent with discount points unchanged at 0.50 percent.

Employment Reports Suggest Stronger Labor Market

Several labor-related reports released last week suggest that job markets are gaining strength as they continue to improve. ADP, a private-sector payrolls company, reported 201,000 new jobs in May against April’s reading of 165,000 new jobs. The Labor Department released its Nonfarm Payrolls report for May and reported 280,000 new jobs against expectations of 210,000 new jobs and April’s reading of 221,000 new jobs.

Average hourly wages rose by 0.30 percent and surpassed expectations of a 0.20 percent increase and April’s reading of 0.10 percent. Although incremental, this suggests that labor markets are strengthening to a point where employers are comfortable with increasing wages.

Weekly Jobless claims were reported at 276,000 new claims filed as compared to expectations of 278,000 new claims and the prior week’s reading of 284,000 new jobless claims filed. The national unemployment rate for May ticked up to 5.50 percent from the prior month’s reading of 5.40 percent, but this reading remains below the Federal Reserve’s original benchmark of 6.50 percent for potentially raising the target federal funds rate. The Fed has not moved to change the rate, but analysts expect that this could occur by Fall if economic conditions hold steady.

What’s Ahead

Next week’s scheduled economic reports include job openings, retail sales, consumer sentiment along with the usual weekly reports on mortgage rates and weekly jobless claims.