Starts Still Spinning Wheels

It’s encouraging to see that home builder sentiment remains positive. The Wells Fargo/National Association of Home Builders Sentiment Index posted at 58 in April.  This is the third-consecutive month the index has posted at that number. (A posting above 50 is a positive sign.)

Home builders are optimistic about the future, but for the present, activity has slowed. Housing starts fell a sharp 8.8%, to a 1.089-million annualized rate, in March.  Permits, which are indicators of where activity is heading, show similar weakness. They were down 7.7%, at a 1.086-million annualized rate, last month.

That said, the long-term trend remains positive. Starts are up 14.2% year over year. What’s more, there’s still plenty of room to grow. The long-term average annual start rate is 1.5 million. Starts could increase by 50% and that would bring us only to historical norms.

Mortgage rates remain accommodating to both home starts and sales.  They continue to hold near lows established a few weeks ago.  Best execution rates on the 30-year fixed-rate loan are still regularly quoted below 3.75% in many parts of the country. What’s more, rates show little inclination to move beyond the tight range they’ve held since the beginning of April.

The good news is that more buyers are taking advantage of low rates. Though purchase applications were off slightly last week, they are still up 17% year over year.  Purchase applications for new homes have been particularly robust. They were 17% for March, and that was a month-over-month increase.  Perhaps that’s the reason for builder optimism.

Information provided by Jessica Regan.

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