The Home Buyer's Korner

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June 18th, 2015

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Home Builder’s Housing Market Index

new home

Groundbreaking on new homes fell 11.1 percent in May, but building permits hit a new eight-year high, as reported by the U.S. Commerce Department this week. Tuesday’s groundbreaking numbers fell short of forecasts by many economist predictions ahead of the release, but the permit numbers beat economists’ expectations. May’s permitting activity reached a seasonally adjusted, annual rate of 1.275 million. That was the highest level for the nation since August 2007, when the rate stood at 1.321 million. May building permits were 25.4 percent higher than a year earlier, when the estimate stood at 1.017 million, and 11.8 percent higher than April’s 1.14 million.

Much of the increase in permitting levels came via multi-family projects: permits for buildings with five or more units hit 557,000 in May, up 26 percent compared to April, while permits for single-family homes rose just 2.6 percent in May compared to April to 683,000. That’s telling me that home builders like most of us still don’t have much confidence in the FHFA to honor its promise from last fall they intend to make getting a mortgage easier anytime soon, so home builders continue to create multifamily i.e. apartments instead of permitting for single family homes.

Furthermore, the homes builders are building tend to be more expensive than pre-owned ones. In addition, builders are building more high-priced homes that may be too difficult for first-time homeowners and those at the lower end of the market to afford.

One of the problems with the housing recovery is that home buyers at the lower-end of the market can’t afford to get into a new home and for many current home buyers, without them they can move up. This is in part because of economic factors like slow income growth, a difficult job market and student loan debts. It’s also because home owners who are still stuck with negative equity can’t put their homes up for sale, which holds inventory back and keeps prices higher.

Housing starts stood at a seasonally adjusted, annual rate of 1.036 million in May. While lower than April’s level, that rate of new home construction is 5.1 percent above the same time last year when the rate stood at 986,000. Single-family housing starts in May fell by 5.4 percent from April, marking a seasonally adjusted, annual rate of 680,000. Starts on buildings with five or more units fell 18.5 percent in May, to a seasonally adjusted, annual rate of 349,000.

On the bright side of housing, Builder Confidence in the market for newly constructed, single-family homes rose five points in June to a level of 59, according to the National Association of Home Builders/Wells Fargo Housing Market Index, released Monday. A reading of 50 or higher means that more builders rate conditions are good than poor; the measure has now been over the 50 mark for twelve straight months. With such long standing hopes it’s beginning to appear their optimism hasn’t been well founded, since its been a long time to be optimistic and we haven’t seen any real signs to signal a sourly need recovery that only the FHFA can deliver by fulling it overdue promise.

The HMI indices measuring current and future sales expectations are at their highest levels since the last quarter of 2005, indicating a growing optimism among builders that housing will continue to strengthen in the months ahead.  At the same time, builders remain sensitive to consumers’ ability to buy a new home due to stagnant wages and restrictive mortgage guidelines.

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