By David Urani
There have been some real mixed messages in housing of late, and in particular the builders are still highly confident despite some flagging sales activity on rising mortgage rates. The NAHB/Wells Fargo Housing Market Index released on Tuesday hit a 58 preliminary reading for September, flat compared to last month, which remains the highest level in almost eight years. There has been a noted pause in momentum as the market adjusts to mortgage rates that are still quite low by historical standards, but have bounced up from the record cheap levels. Nevertheless, traffic of prospective buyers hit a new high, up one point to 47.
Certainly homebuilder confidence has flown somewhat in the face of new-home sales results, which as of the latest reading fell 13% month to month in July on an annually adjusted basis. We do note that readings can be volatile at times, but between that and other indicators -- such as mortgage applications -- it seems clear that housing demand has at least taken a breather lately.
Perhaps the homebuilders are looking at this whole thing from a more historical, long-term perspective. Certainly mortgage rates have risen, to more than 4.5% for a 30-year loan from less than 3.5% late last year, and that makes homes less affordable. However, any volatility in mortgage rates is more near-term turbulence within a long-term growth story. Supply and demand are still the reigning factors for the long term, and in that respect new-home sales are up significantly from a year ago, while still being less than a third that of peak levels (we acknowledge the peak was a bubble, but it goes to show the capacity for sales to continue to rise from the lows). Meanwhile, supply remains relatively scant at just over five months' worth, and I think that's what the homebuilders are probably looking at.
On Wednesday, we got housing starts data for August with a reading of 891K, up modestly from the 883K revised number for July but below the 915K consensus. Meanwhile, permits were down 3.8% month to month and below the 950K consensus. On the surface it wasn’t fantastic, but going into it obviously there’s a lot of questioning over the housing market on the rise in mortgage rates. So, in that sense, the fact alone that there wasn't a notable decline in starts was a good thing.
Going a step further, I like to look at single-family units, and those showed a 7.0% increase month to month to the highest level since February. Meanwhile single-family permits were up 3.0% to a new multi-year high. So in the area of single-family homes the data looks good, and also does better to echo Tuesday’s strong NAHB Housing Market Index reading on builder confidence.