Weekly Economic Update -- Better Than it Looks

The headlines for the Census Bureau’s residential construction report didn’t look so red

hot. Permits, starts, and completions were all down and all missed analysts’ predictions.

But digging deeper, the lower numbers were hiding some good news for single-family

construction and some strong regional variations.

MBA’s Chief Economist released his forecast for the next couple of years and the

interest rate projection was encouraging. Rates are up, but maybe they won’t rise much

higher.

Home building failed to meet analysts’ predictions in September, but, as is often the case with the residential construction report from the Census Bureau and Housing and Urban Development, things got better the deeper one dug. Permits only lost a bit of ground, down 0.6%, and all of that can be accounted for by the multi-family sector; single family permits bumped up 2.9%. There was also a strong upward revision to the August number which, given the month or so average lag between permits and starts, may mean a higher number for the latter in October. 

And starts could use the help. They were down 5.3% from August to a seasonally estimated 1.201 million units. Further, the August estimate was revised down by about 25,000 starts, cutting into what had been reported as a strong 9.2% gain. But again, the bad news was mostly on the multifamily side and from what was probably Hurricane Florence’s disruption in the South where starts and completions both fell by more than 13%. Two of the other three regions posted some strong numbers; starts rose by nearly 30% in the Northeast and both permits and completions gained more than 11% in the West.

The National Association of Home Builders said the 1 point uptick in its October Housing Market Index, which measures new home builder confidence in that market, was probably due to the continued fallback in lumber prices. They have been declining for three months, giving hope that builders will be able to hold down new home price gains.

Good News is Sometimes Relative

The Mortgage Bankers Association (MBA) held its annual convention this week, and among the wild and crazy festivities was a housing forecast from Chief Economist Mike Fratantoni for 2019 to 2021. He sees a rather lackluster year ahead, with home sales rising only modestly (it’s the inventories, folks), but things will pick up in 2020. The good news in the forecast was a continued moderation in home price growth, and the best news was his prediction regarding interest rates.

He says there will be one more Fed rate hike this year and three in 2019, bringing the rate to about 3%. The 10-year Treasury rate will “rise to about 3.4% and then level out, bringing 30-year mortgage rates to roughly 5.1%.”

And why is that good news? It is exactly the rate MBA quoted in its mortgage application volume report this week.

10.19.2018

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