The Mortgage Corner

Will new housing construction improve the very low inventory levels that are restricting housing sales? It is hard to know at present if this slowdown is due more to the severe winter weather, lack of inventory, or rising interest rates.

The US Census Bureau reported privately-owned housing starts in February were at a seasonally adjusted annual rate of 907,000. This is 0.2 percent below the revised January estimate of 909,000 and is 6.4 percent below the February 2013 rate of 969,000.

The National Association of Home Builders says it is also due to stricter loan underwriting criteria, but remains optimistic that demand for new homes will be high due to the inventory shortages.

“While housing construction is in a recent lull due to unusual weather conditions, we expect to see an improvement as the winter weather pattern subsides and builders prepare for the spring selling season,” said NAHB Chief Economist David Crowe. “Competitive mortgage rates, affordable home prices and an improving economy all point to a continuing, gradual strengthening of housing activity through the rest of the year. Moreover, building permits, which are less dependent on weather and are a harbinger of future building activity, rose above 1 million units in February.”

housestarts

Graph: Calculated Risk

Single-family housing starts in February were at a rate of 583,000; this is 0.3 percent above the revised January figure of 581,000. The February rate for units in buildings with five units or more was 312,000.

This is a sign that the purchase market should improve for single-family buyers as well. Nationally, affordability is down from 203.7 in October 2012 to 165.4 in October 2013, according to the NAR. Mortgage rates are down from last month and up 25.8 percent from a year ago. Lower rates help affordability but an increase in inventory will help ease the pressure on home prices.

And by region, affordability is up from one month ago in all regions except the Northeast, where there was a 5.0 percent decrease in affordability. The Midwest had the biggest gain in affordability at 2.7 percent. From one year ago, affordability is down in all regions. The West has had the largest price gain at 16.7 percent while the Northeast had the smallest at 7.4 percent.

NAR

Graph: NAR

In fact, the indeterminate status of Fannie Mae and Freddie Mac may also have an effect. Their fees have been rising in an attempt by the US Treasury to push more lending onto private banks that pool their own mortgages for purchase in the secondary market.

But, except for in the jumbo market with loan amounts above the Hi-Balance conforming limits, that isn’t happening. Fannie and Freddie are still the only game in town for conforming loans. This means Janet Yellen’s Federal Reserve must continue to keep longer term interest rates as low as possible for the forseeable future, if real estate is to continue its recovery from the Great Recession.

Harlan Green © 2014

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