Weekly Economic Update-Weak End to a Strong Year

December construction numbers were weak, some even weaker than expected, but overall it was a good year for home building. The Census Bureau says permits, housing starts, and completions all had higher numbers than in 2016.

Interest rates are on the move, rising 9 basis points in the last week. What goes up of course can come down, and Freddie Mac sees only gradual gains this year.

While it probably won’t be nearly enough to relieve those pesky inventory shortages, residential construction did finish 2017 in pretty good shape. The Census Bureau said on Thursday that there were an estimated 1,152,300 housing units completed during the year, an increase of 8.7% from 2016.            

That said, the construction numbers for December were only so-so. Analysts had anticipated that there would be a little give-back after some unexpectedly high permitting and housing start numbers in October and November. Construction authorizations did slip compared to November, but only by a tiny 0.1%, leaving the rate almost 3% higher than a year earlier.

Housing starts, however, gave back a lot. Their seasonally adjusted rate fell by 8.2%, to a seasonally adjusted rate of 1.192 million units. Analysts had been looking for a rate nearly 90,000 units higher. Even more surprising, the single-family sector, which has been the recent star of the show, fell back by 11.8% compared to November, although those starts are still 3.5% ahead of last year.                

Still and all, there were 4.7% more permits issued in 2017 than in 2016. Housing starts were up by 2.4%.

The National Association of Home Builders (NAHB) recently surveyed its new home builder members and found that, while home building increased in 2017, the houses are essentially the same. NAHB had been noting a slight trend toward smaller units, but last year the square footage inched up 5 whole feet, to an average of 2,627. Forty-six percent of the homes built last year had four bedrooms and 37% had three full baths, little changed from the respective 45% and 35% pattern in 2016.

Speaking of Inching Up

Mortgage rates moved higher for the second straight week, crossing the 4.0% line for the first time since July. The thirty-year rate has increased by a total of 9 basis points since the week ended January 5, and now stands at 4.04%. This doesn’t necessarily mean the party is over, however. Rates rose above 4% several times in 2017, only to return to a lower range.

If you are concerned about the short-term rate outlook, call your loan officer. We don’t have a crystal ball, nor can we offer any guarantees, but we will have some insight about where the market might be headed. Remember too, Freddie Mac is forecasting rates to stay below 4.5% this year. 

01.19.2018

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