Housing Market Index
The housing market index for February is down 3 points to 58, the lowest reading since May of last year; this is an indication that the optimism among home builders is cooling noticeably. Though the reading came short of last month’s 58, it is still well above the breakeven point of 50. In fact, the future sales component actually rose 1 point to 65. However, the current sales component is down 3 points to 65. The traffic of prospective buyers in new homes has been holding down the report throughout the whole recovery period and continues to do so. It is down a steep 5 points to 39, the lowest reading since May of last year as well. These weaknesses reflect lack of first-time buyers in the market. Builders are citing scarcity of both labor and available lots as negatives right now. Momentum in the housing sector was inconsistent last year and based off of this report looks to remain that way.
Falling mortgage rates continue to drive refinancing applications sharply higher up 16% for a second straight week. Total mortgage applications were up 8.2% on a seasonally adjusted basis last week from the previous week. Mortgage lenders set a new record in terms of average loan size for refinances last week at $316,000. In addition to an increase in conventional refinance applications, Veterans Administration refinance volume increased by 28%, and the average loan size for a VA loan refinance increased to its highest on record. This increased volume for all refinances, which is now 50% higher than just four weeks ago, was unexpected, as most thought that interest rates would rise after the Federal Reserve increased its funds rate in December. Though refinance is up, significantly lower interest rates did not spur homebuyers. Mortgage applications to purchase a home fell 4 percent from the previous week, although they are still 30 percent higher than the same week a year ago.
Housing starts and permits were down 3.8% in an annualized rate of 1.099 million for starts with permits down 0.2% to 1.202 million. Starts show roughly the weakness between single-family homes, down 3.9% to a 731,000 rate, and multifamily homes, down 3.7 percent to 368,000. Permits for single family homes fell 1.6 percent to 720,000, while multifamily permits rose 2.1 percent to 482,000 for the strongest reading in the report. Multifamily homes remain the center of strength for the housing sector with year on year permits up 19.9 percent, surpassing a very solid 9.6 percent gain for single family homes. Starts are lagging far behind, they show a year on year increase of 1.8 percent overall and reflecting supply constraints in the construction sector, including labor, and the heavy weather that h it the East Coast mid-month. Trends in the housing permits, though not extremely strong, do point to strength.
The FOMC minutes are released with a three week lag after the meeting, so the information reported this week was actually from the meeting on January 27th. Risks, in particular global risks were the theme of January’s FOMC meeting. They highlighted that continuing deterioration of financial conditions could amplify downside risks to the US economy. Policy makers assessed the implications of global economic and financial developments on the outlook for the labor market and inflation. Several of the 17 members of the committee called for direct evidence of inflation before further hiking rates, while others were concerned that policy was less well positioned to respond to shocks. Some members did note that wage pressures had picked up. Many participants agreed that uncertainties had increased. The vote to hold policy unchanged was unanimous at 10 to zero.