By Jack McCabe
The housing market appears to be picking up some momentum after slowing for much of the last year. Numerous data points released over the past week point to the sector beginning to strengthen, buoyed by falling mortgage rates. Housing is one of the most prominent interest rate sensitive sectors of the economy, and recent easing by the Federal Reserve has had a positive impact for both home builders and home buyers.
The Census Bureau reported that new home sales increased 7.1 percent over the month in August to 713,000 units, well above economists’ consensus forecast of 660,000. Likewise, the National Association of Realtors reported that existing home sales rose 1.3 percent in August to a seasonally adjusted annual rate of 5.49 million units, which was a 17-month high.
Housing starts similarly surprised to the upside, rising 12.3 percent over the month in August to a seasonally adjusted annual rate of 1.36 million, while building permits increased 7.7 percent to an annual rate of 1.42 million. Both rates were the strongest since June 2007. Homebuilder confidence climbed to its highest level of the year, according to the National Association of Homebuilders/Wells Fargo Housing Market Index.
In addition to falling mortgage rates (the 30-year fixed rate mortgage is down to 3.75 percent from nearly 5 percent in November 2018), slower growth in home prices has given a boost to buyers. Home prices grew 3.2 percent over the year in July, the slowest rate since 2012, according to the S&P/Case-Shiller U.S. National Home Price Index.
While builder sentiment remains strong, some concern remains over supply challenges, such as the high cost of labor and construction materials, and uncertainty stemming from trade disputes. Much of the construction since the recession has occurred at the higher-end of the price range, leading to a lack of sufficient supply of affordable starter homes. The low inventory of affordable homes could potentially put a stress on the market as the large millennial generation comes into its household formation years.
