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Last week we received a few important reports related to housing. The National Association of Home Builders released its report on builder confidence on the housing markets, but is there a disconnect? Housing starts reached their highest level since the great recession, while permit dropped. Existing home sales exceeded expectations and the prior month’s reading, but there are serious issues that need to be addressed for a sustain improvement in the housing market.

In the previous week, The Federal Reserve released it minutes for its most recent FOMC meeting, which pointed out that a majority of FOMC members are leaning toward raising the Fed’s target federal funds rate; however concerns over certain aspects of the economy continue to keep the Fed from citing a date for raising its target interest rate. Most analysts have been betting on September’s meeting for a hike. However, in light of today’s drop in the Dow and the Chinese devaluing their currency last week, it could create caution by the Fed before moving to raise the overnight fed funds rate and hold stead until the final meeting set in December. 

The National Association of Home Builders reported its highest level of builder confidence in the housing market conditions since November of 2005. August’s reading was 61 as compared to an expected reading of 59 and July’s reading of 60. Any reading over 50 indicates that housing market conditions are good. NAHB Chief Economist David Crowe said that August’s readings were consistent with builder expectations of gradual improvement in overall housing market conditions. Builder confidence in current market conditions rose by one point to a reading of 61; confidence in buyer foot traffic in new housing developments rose 2 points to 45 and the reading for expected home sales conditions over the next six months was unchanged at a reading of 70.

Builder confidence as shown by the three-month rolling average indicated that builder confidence increased by three points for a reading of 63 for the West; the Midwest also posted a gain of three points for a reading of 58. The South posted a two point gain in builder confidence for a reading of 63. In the Northeast, builder confidence held steady at 46. 

The index has been positive for the past year and analyst point to builder confidence as an indication that single-family housing is making slow, but steady progress. The overall message from the survey was very upbeat and most economists saw no reason to change their view that a real recovery in the housing market is finally under way.

Yet, newly built single-family home sales fell in June by 6.8 percent to their lowest reading since November 2014 and the index level is similar to its level in early 2006, when single-family housing starts “were running at over a 1.5 million unit rate, or more than twice what it are now.

Sales of pre-owned homes reached a new post-recession record in July, according to the National Association of Realtors®. Sales of previously owned homes rose to a seasonally adjusted annual rate of 5.59 million sales as compared to expectations of 5.48 million sales and June’s reading of 5.48 million sales. Sales of existing homes have risen for three consecutive months and are 10.30 percent higher year-over-year.

However, first-time buyers declined to 28 percent of all buyers, the lowest share since January and for a truly healthy housing market we need at least 40 percent of all home sold to be going to first time home buyers and for now sales are being driven largely by buyers who already own homes. The market dynamics have also given an edge to existing homeowners, who can tap into rising home equity as their own properties appreciate. Most home sales this year have been move-up buyers, as a lot of those people got trapped when the market crashed and they’re finally starting to get some equity in their homes.

The Commerce Department reported that June housing starts increased from 1.20 million in May to 1.21 million in June; this is a month-to-month increase of 0.20 percent. Economists had expected a dip in housing starts to a rate of 1.185 million on an annual basis. Thanks to a dramatic upward revision at around 1.21 million units on seasonally-adjusted annual rate (driven by a rise in single-family units trumping multi-family units) the new homes market appear to remain stable. However, this won’t be sustainable if new home sales don’t rise over the next few months.

Single family housing starts rose by 12.90 percent to a seasonally adjusted annual rate of 782,000 starts.

Building permits slipped in July by 16.30 percent to an annual rate of 1.29 million permits issued. This was the biggest miss on record for permits.

Building permits issued rose by 7.70 percent in the South, and rose by 20 percent in the Midwest. In the West, permits issued declined by 3.10 percent in July, while the Northeast posted a decline of 27.50 percent in building permits issued. This was not a surprise as builders rushed to take out permits before a tax credit expired in June.

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Freddie Mac reported that average mortgage rates fell for fixed rate mortgages and ticked upward for 5/1 adjustable rate mortgages. The average rate for a 30-year fixed rate mortgage fell by one basis point to 3.93 percent. 15-year fixed mortgage rates fell by two basis points to 3.15 percent and the average rate for a 5/1 adjustable rate mortgage rose by one basis point to 2.94 percent. Discount points were unchanged across the board at 0.60 percent for 30 and 15-year fixed rates and 0.50 percent for 5/1 adjustable rate mortgages.

What’s Ahead for the Week?

This week we’ll receive reports from S&P in the form of the Case-Shiller 10 and 20 City Home Price Index. The Federal Home Finance Agency (FHFA) will provide its report on house prices for home sales connected with mortgages owned by Fannie Mae and Freddie Mac and we’ll get the Pending Home Sales report. Core inflation numbers will also be released and significant as the Fed look for their elusive 2.0 percent annual inflation rate as one of its indicators for raising the Federal funds rate. Freddie Mac’s survey of average mortgage rates and weekly jobless claims will be released as usual and we’ll wrap up the week with the Consumer Sentiment report.

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