Housing Starts See Biggest Drop Since April 2013, Permits Fall

Published September 18, 2014

Reuters

U.S. housing starts and permits fell in August, but upward revisions to the prior month's data suggested the housing market continued to gradually improve.

Groundbreaking declined 14.4 percent to a seasonally adjusted annual 956,000-unit pace, the Commerce Department said on Thursday. July's starts were revised to show a 1.12-million unit rate, the highest level since November 2007, instead of the previously reported 1.09-million unit rate.

Economists polled by Reuters had forecast starts slipping to a 1.04-million unit rate last month.

Housing is clawing back after suffering a setback following a spike in mortgage rates last year. It, however, remains constrained by a relatively high unemployment rate and stringent lending practices by financial institutions.

A survey on Wednesday showed homebuilder sentiment hit its highest level in nearly nine years in September and builders reported a sharp pick-up in buyer traffic since early summer.

Groundbreaking for single-family homes, the largest part of the market, fell 2.4 percent in August to a 643,000-unit pace. That followed a hefty 11.1 percent increase in July.

Starts for the volatile multi-family homes segment tumbled 31.7 percent to a 313,000-unit rate in August.

Last month, permits fell 5.6 percent to a 998,000-unit pace. July's permits were revised slightly up to a 1.06-million unit rate. Economists had expected them to dip to a 1.05-million unit pace in August.

Permits for single-family homes fell 0.8 percent to a 626,000-unit pace in August. Permits in the U.S. South, where more than half of single-family construction occurs, hit their highest level since April 2008.

Permits for multi-family housing declined 12.7 percent to a 372,000-unit pace.

Report: Millennials Can Still Make a Difference In Housing

Author: Tory Barringer September 17, 2014 Share on facebookShare on twitterShare on emailShare on pinterest_shareMore Sharing Services3

Despite concerns about their current presence, millennials still have a major role to play in shaping the housing market in the coming years, researchers assert in a new report from theDemand Institute (TDI).

Based on an analysis of economic and consumer research over the last 18 months, TDI predicts the number of households headed by millennials will reach 21.6 million by 2018, representing an increase of 8.3 million since 2013.

That gain in younger household formations is expected to translate to $1.6 trillion spent on home purchases and $600 billion spent on rent in the next few years—more on a per-person basis than any other generation.

While most of those new households are expected to rent, the report shows a combined 84 percent either already own a home or plan to purchase one someday.

Furthermore, out of the nearly three-quarters of millennial consumers who said they plan to move in the next four years, 48 percent cited their desire to own their home as one of their top reasons for moving.

Louise Keely, president of TDI and SVP at Nielsen, which jointly operates the think tank, said the feelings shown in the survey demonstrate that today's young adults might not be as negative on homeownership as some commentators might believe.

"A fundamental question about Millennials is whether their coming of age in the Great Recession has shaped their goals and aspirations to be different from those of previous generations," Keely said. "We found that, while this generation has many unique characteristics when it comes to their housing choices, they share many of the same intentions as young adults in previous decades."

One thing TDI researchers found that does fit with most reports: Gen Y has its own specific financial challenges keeping it on the sidelines of the housing market, especially in the area of student debt. In their research, they found that among the younger members of the 18–39 age group, those without student loans tend to have higher homeownership rates than those that don't, regardless of whether or not they graduated from college.

On the other hand, homeownership rates are higher for college graduates between the ages of 30 and 39, suggesting the boost in income that comes with a college degree seems to play a bigger role.

To cater to those millennials who have found themselves at a disadvantage as a result of high debt and a weak job market, TDI suggests lenders explore non-traditional financing options, including single-family rentals and hybrid contracts like lease-to-own agreements.

Survey: Misconceptions Holding Back Homebuying

Author: Tory Barringer September 16, 2014Share on facebookShare on twitterShare on emailShare on pinterest_shareMore Sharing Services6

While nearly seven in 10 Americans agree that now is a good time to become a homeowner, a large number remain reluctant due to their own misguided understanding of the financing process, according to survey results released Monday.

In a poll of more than 2,000 consumers, Wells Fargo found 68 percent feel that now is a good time to buy a home, and 95 percent want to own if they don't already.

The results jibe with Fannie Mae's latest consumer housing survey, in which 64 percent of Americans said now is a good time to buy (matching the survey's record low).

"Although the homebuying process has changed in many ways in recent years ,our survey found Americans still view homeownership as an achievement to be proud of and many believe that now is a good time to buy a home," said Franklin Codel, head of Wells Fargo Home Mortgage Production.

On the other hand, while nearly three-quarters of respondents in Wells Fargo's survey said they "know and understand" the financial process involved in buying a home, large numbers also expressed doubt or misguided notions about homebuying requirements. For example, Wells Fargo reported, 30 percent of respondents expressed belief that only people with high incomes can obtain a mortgage at this point, and 64 percent said they believe only those with a "very good"” credit score can buy a home right now.

While 64 percent of respondents said they have an understanding about how much of a down payment is needed to purchase a home, nearly half said 20 percent is required. Forty-four percent also said they know little or nothing about closing costs.

While most lenders report that lending requirements at the moment are still high as a result of enhanced regulations and reluctance to take risks, Codel says lenders would be well served to work on educating homebuyers about all programs available to them—especially the millennial crowd, most of which pointed to lack of down payment funds as one of their biggest hurdles to homeownership.

"It is important for prospective homebuyers to feel empowered to ask lenders and real estate agents questions about available options, such as down payment assistance or FHA [Federal Housing Administration] or VA [Veterans Affairs] loans for veterans," he said. "Informing prospective homebuyers about their options is the first step toward helping them realize their goals."

On the other hand, the survey also found most Americans are confident in managing their personal finances, with 82 percent saying they know how to save, invest, and work within a budget. In addition, 63 percent said they have a "rainy day fund," including more than half of millennial-aged respondents.

With so many Americans focused on keeping their financial houses in order, Codel says there's a decent opportunity to turn those consumers into responsible homeowners with an educational push.

"[W]e have an opportunity as lenders, nonprofit agencies and real estate agents to better inform Americans about credit ratings, mortgage costs and housing affordability," he said. "This would help demystify the homebuying experience for many consumers."

Report: Consumer Sentiment Highest in 14 Months

Author: Tory Barringer September 12, 2014 Share on facebookShare on twitterShare on emailShare on pinterest_shareMore Sharing Services1

Consumer sentiment ticked up in September to its highest point in more than a year, according to an early reading.

The Thomson Reuters/University of Michigan'sIndex of Consumer Sentiment edged up more than two points in a preliminary September reading, putting it at a 14-month high of 84.6.

The increase in the headline index was driven by a more than four-point improvement in the gauge of consumer expectations, which rose to 75.6.

On the other hand, the Current Conditions Index fell more a point to 98.5. According to Paul Diggle, U.S. economist for Capital Economics, the small decline "could reflect the weaker pace of payroll growth in August or even the slowdown in some measures of housing market activity."

The UMich survey was released the same day as Deloitte's latest Consumer Spending Index, a measure of consumer cash flow used to predict future spending. According to the company, that index jumped up last month to 3.96.

"A notable decrease in initial unemployment insurance claims helped push the Index up," said Daniel Bachman, senior U.S. economist at Deloitte. "An improving labor market can be a boon to consumer confidence. If these trends continue, there is a strong likelihood that we could see an acceleration of economic growth in the latter part of the year."

Diggle agreed, observing that at its current level, consumer confidence is consistent with annualized spending growth of as much as 3 percent for the third quarter.

"That relationship is far from perfect and we don't think consumption will be quite that strong, but between 1.5 percent and 2.0 percent now looks eminently possible," he said.

Investors Skeptical of Fed Rate Increase Forecast

Author: Tory Barringer September 9, 2014 Share on facebookShare on twitterShare on emailShare on pinterest_shareMore Sharing Services5

A new survey from the Federal Reserve Bank of San Francisco finds investors aren't buying in to the central bank's projections of interest rate increases in the coming years.

In a study published September 8, analysts for the San Francisco Fed say their model — based on investor activity—forecasts a federal funds rate of 0.75 percent at the end of 2015 and 2.13 percent the following year.

In their latest economic projections from June, the members of the Federal Open Market Committee (FOMC) projected a median federal funds rate of 1 percent at year-end 2015 and 2.5 percent at the end of 2016.

Based on their own modeling, the analysts say investors put the probability of the federal funds rate hitting the FOMC's target next year at 31 percent, with 2016's projected rate having a 27 percent probability.

"Our analysis shows that, on balance, the public seems to expect more accommodative policy than FOMC participants," the researchers concluded.

The investor model also features a smaller range between the upper and lower forecasts than the predictions offered by Fed policymakers, "suggesting the public also may be less uncertain about their projections," they added.

The San Francisco Fed's report comes one week before the FOMC announces its next economic policy move—and before Fed Chair Janet Yellen is scheduled to give her own hints at the central bank's timeline.

Yellen and many of her colleagues have stressed a slow, thoughtful approach so as not to disturb the economic recovery. However, the fact that investors apparently anticipate an even slower run-up in rates could indicate their failing optimism in the economy's projected growth over the coming years.

Index Shows Employment Growth Slow But Steady

Author: Tory Barringer September 8, 2014 Share on facebookShare on twitterShare on emailShare on pinterest_shareMore Sharing Services7

Following the recent Bureau of Labor Statistics report of ongoing—albeit disappointing—employment growth in August, another indicator of labor market trends shows continued steady improvement.

On September 8, The Conference Board released its Employment Trends Index (ETI) for August, reporting a slight increase from July to a reading of 121.29.

Compared to a year ago, August's ETI was up 6.4 percent, reflecting strong gains made earlier this year as monthly payroll growth topped 200,000 for six straight months.

"The strong increase in the Employment Trends Index in recent months signals robust job growth through the fall," said Gad Levanon, director of macroeconomic research at the Conference Board, adding that August's lower-than-expected employment numbers "seem to be a one-month deviation from a stronger trend."

August's increase was driven by improvements in seven of the eight indicators used to calculate the index, the group reported, with the percentage of firms unable to fill positions right now contributing the most.

The index was also boosted by a drop in the percentage of Americans who say jobs are currently hard to get, which fell marginally to 30.6 percent in the Conference Board's latest Consumer Confidence Index.

Also measured in the group's monthly report are government data on initial jobless claims, the number of employees hired for temporary help, and job openings, all of which are reported by the government.

The one indicator not included in August's improvement was the government's weekly estimate of initial jobless claims, which hovered around the 300,000 mark throughout August.

Freddie Mac: Mortgage Rates Stay Level

Author: Tory Barringer September 5, 2014 Share on facebookShare on twitterShare on emailShare on pinterest_shareMore Sharing Service10

Mortgage interest rates stayed fairly level this week, settling in ahead of the Bureau of Labor Statistics August jobs report, which was released September 5.

Freddie Mac released on September 4 the results of its latest Primary Mortgage Market Survey, showing the average 30-year fixed-rate mortgage (FRM) coming in at 4.10 percent (0.5 point) for a third straight week, the lowest level seen so far this year.

The 15-year fixed average was down slightly, dropping 1 basis point to 3.24 percent (0.5 point).

It was a similar story for adjustable rates, with the 5-year adjustable-rate mortgage (ARM) averaged a rate of 2.97 percent (0.5 point), unchanged from last week, and the 1-year ARM averaging 2.40 percent (0.4 point), up from 2.39 percent previously.

The numbers coming from Bankrate.com's weekly survey were similar, with the 30-year fixed average moving up a point to 4.24 percent and the 15-year fixed moving down a point to 3.37 percent. The 5/1 ARM moved slightly more, dropping 7 basis points to 3.25 percent.

While it's been a tame summer for mortgage rate movements, analysts at Bankrate say it's only a matter of time before that steadiness ends, especially as economic improvements spur policymakers at the Federal Reserve to stop holding interest rates down as much.

"If we get another upbeat jobs report this week, the bond market could begin to realize that higher interest rates are an eventuality, leading mortgage rates higher," they said in a release.

As for what will happen next week, expert opinions are split between an increase and no meaningful change.

"[W]hen rates do rise, they won't go up gradually, like a gently sloping hill. They'll march upward in steps, like a flight of stairs," said Holden Lewis, assistant managing editor at Bankrate. "That first step might be a doozy. It might happen in the coming week (doubtful) or months from now."

Power Shift Could Result in Home Sales Spike

Author: Tory Barringer September 1, 2014 Share on facebookShare on twitterShare on emailShare on pinterest_shareMore Sharing Services46

The balance of power in the housing market is continuing its tilt back to buyers—and that could spell a surge in home sales in the coming months.

In the brokerage's latest Real-Time Housing Market Tracker, Redfin Chief Economist Nela Richardson notes two ongoing trends indicating a shift to a more balanced market as the nation heads into fall: a slowdown in home price growth and a transfer in pricing power away from sellers.

For July, Redfin recorded a 0.3 percent monthly decline in the median sales price of homes sold in the major metros the company tracks, marking the first time in five months that price growth was essentially flat, Richardson said.

"We ... expect prices to continue to flatten, and to potentially decline month over month in September or October,” she added. “If that happens, it will be the first three-month price decline since the fall 2012."

What's more, Redfin recorded a substantial annual decline in the number of homes selling above their list price: 20.1 percent compared to 26.8 percent a year ago.

That decline is happening at a time when more sellers are bringing their listing prices down to compete with a widening inventory.

"Sellers are finally catching on that it's not a seller's market anymore," said Jeremy Cunningham, a Redfin agent in Virginia.

Redfin reported price drops are most common in markets where inventory and home price appreciation have improved most over the year. For example, in Denver—the metro with the largest percentage of listing price drops—the median sales price has jumped 15 year-over-year compared with the national average of 5.5 percent.

The company's agents have also reported seeing more negotiation between buyers and sellers at the beginning of the sales process and post-inspection, meaning buyers feel they have more room to work out a deal.

"When a buyer sees a price drop, she takes it as 'blood in the water' and wonders what's wrong with the house and wants to negotiate for an even lower price," Boston-based agent Adam Welling said.

Given these changes and promising—albeit uneven—growth in housing inventory, Richardson anticipates housing market activity this fall to be the strongest in five years.

"We continue to see strong buyer demand as we head into fall. The number of tours and offers across Redfin markets continue to accelerate from July and into August," Richardson said. "This is a good indication that buyers are continuing their home searches."

Not everyone shares Richardson's optimism. In its most recent market forecast, Fannie Mae toned down its expectations for housing's contribution to the economy this year. While most of the revision was based on a poor showing in the year's first half, chief economist Doug Duncan offered a subdued outlook for the next year.

"[O]n the demand side, there appears to be a conservatism among consumers and their willingness to take on big-ticket purchases, such as homes," Duncan said in the company's report. "We currently estimate that 2014 will finish lower in total sales figures than 2013—and that 2015, while stronger than 2013 and 2014, will not be the breakout year some are expecting."