Home Builder Optimism at Sky High Levels

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Published Date 12/18/2017

Realtor Report

Home Builder Optimism at Sky High Levels

Builder confidence in the market for newly-built single-family homes increased five points to a level of 74 in December on the National Association of Home Builders Housing Market Index (HMI) which is the highest reported level since July 1999, over 18 years ago.

“Housing market conditions are improving partially because of new policies aimed at providing regulatory relief to the business community,” said NAHB Chairman Granger MacDonald, a home builder, and developer from Kerrville, Texas.

“The HMI measure of home buyer traffic rose eight points, showing that demand for housing is on the rise,” said NAHB Chief Economist Robert Dietz. “With low unemployment rates, favorable demographics and a tight supply of existing home inventory, we can expect continued upward movement of the single-family construction sector next year.”

Derived from a monthly survey that NAHB has been conducting for 30 years, the NAHB Housing Market Index gauges builder perceptions of current single-family home sales and sales expectations for the next six months as “good,” “fair” or “poor.” The survey also asks builders to rate traffic of prospective buyers as “high to very high,” “average” or “low to very low.” Scores for each component are then used to calculate a seasonally adjusted index where any number over 50 indicates that more builders view conditions as good than poor.

All three HMI components registered gains in December. The component measuring buyer traffic jumped eight points to 58, the index gauging current sales conditions rose four points to 81 and the index charting sales expectations in the next six months increased three points to 79.

Looking at the three-month moving averages for regional HMI scores, the Midwest climbed six points to 69, the South rose three points to 72, the West increased two points to 79 and Northeast inched up a single point to 54.

Source: NAR.com

This Week's Mortgage Rate Summary

How Rates Move:

Conventional and Government (FHA and VA) lenders set their rates based on the pricing of Mortgage-Backed Securities (MBS) which are traded in real time, all day in the bond market. This means rates or loan fees (mortgage pricing) moves throughout the day, being affected by a variety of economic or political events. When MBS pricing goes up, mortgage rates or pricing generally goes down. When they fall, mortgage pricing goes up.

Rates Currently Trending: Neutral

Mortgage rates are trending sideways this morning. Last week the MBS market worsened by -5bps. This caused mortgage rates to move sideways. Mortgage rates continue to move sideways with relatively low volatility.

This Week's Rate Forecast: Neutral

Three Things: These three areas have the greatest ability to impact mortgage rates this week. 1) Tax reform, 2) Government shutdown and 3) Domestic.

1) Tax reform: The reconciled tax till has been finalized. It will be voted on by the House on Tuesday and then to the Senate on Wednesday or Thursday. It is still a very close call in the Senate as McCain is back in AZ and will not vote at all on the bill. But offsetting that is Lee and Cochran that will vote for it. Still, there are still a few Republican Senators that are "on the bubble" and have not confirmed that they will support the Bill.

2) Government shutdown: The can was kicked all the way to Friday and the push is on to get more permanent funding through. This may be more difficult than the Tax Bill as there needs to be bipartisan support to get longer-term funding through. The Democrats are using this as their one opportunity to leverage some of their key issues that are not budget/economic related and are folding them into negotiations.

3) Domestic: The most important report of the week is Friday's Core YOY PCE reading as the "official" inflation rate. Thursday's revision to the 3rd QTR GDP (3.3%) will also get a lot of attention.

Taking it to the House: This week has a lot of key housing-related reports. They do not impact your mortgage rates but are always important to watch.

12/18 NAHB Housing Market Index
12/19 New Housing Starts and Building Permits
12/20 Existing Home Sales
12/21 FHFA Home Price Index
12/22 New Home Sales

Brexit: The uncertainty of PM May to get anything done or to even get a good deal has certainly helped bonds globally. There are several key meetings this week that the markets will closely watch.

China: Their annual Central Economic Work Conference starts Monday and continues into Wednesday.

Japan: The Bank of Japan monetary policy meeting followed by Governor Kuroda’s press conference.

This Week's Potential Volatility: Average

Mortgage rates are likely to continue to move sideways this week. Something rather unexpected would need to happen to push mortgage rate lower and out if it's very defined channel.

Bottom Line:

If you are looking for the risks and benefits of locking your interest rate in today or floating your loan rate, contact your mortgage professional to discuss it with them.

Source: TBWS

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