The remodeling market slid backward during the second quarter, according to the latest National Association of Home Builders' (NAHB) Remodeling Market Index (RMI). The RMI (combining current and future market indicators) sunk to 40.7 from 43.8 in the first quarter. Current market conditions slid back to 42.6 from 44.5 in the previous quarter. Future indicators of remodeling business declined to 38.9 from 43.1 in the last quarter.
The RMI measures market demand for current and future residential remodeling projects based on remodelers' perceptions and indicators of future activity like calls for bids. Any number below 50 indicates that more remodelers say market conditions are getting worse than report improving conditions. The RMI has been running below 50 since the final quarter of 2005 and during the last quarter approached break even again.
"Remodelers are suffering from weak consumer confidence and constricted credit lines," said NAHB Remodelers Chairman Donna Shirey, CGR, CAPS, CGP, a remodeler from Issaquah, Wash. "Homeowners are delaying remodeling projects because of economic uncertainty."
The current conditions indices for the remodeling market worsened in two regions: Northeast 41.4 (from 46.6 in the first quarter); and South 42.4 (from 44.1). However, current remodeling indices improved in the Midwest 44.7 (from 43.8) and the West 42.0 (from 34.8). Major additions fell to 44.2 (from 48.0), as did minor additions to 45.8 (from 47.3). Maintenance and repair indicators showed a milder decline, from 37.3 to 36.6.
All the indices for future remodeling business declined. Calls for bids dropped to 46.2 (from 49.4). Work committed for the next three months slumped to 27.9 (from 29.9). The backlog of remodeling jobs dipped to 37.7 (from 44.8), and appointments for proposals slid to 43.7 (from 48.1).
Responding to additional special questions in the survey, remodelers also reported on the changing composition of remodeling projects. Sixty-one percent said bathroom remodeling was one of their most common projects during the first half of 2010. Kitchen remodeling came next with 52 percent. In previous years, kitchen remodeling was reported as the most common activity by more than 70 percent of remodeler respondents.
In general, comparisons to historical data show that larger remodeling projects (such as room additions, whole house remodeling, bathroom additions, and second story additions) have been on the decline for several years. Smaller remodeling jobs (such as window and door replacements) have remained relatively steady, or, in the case of handyman services, actually increased. For example, only 29 percent of remodelers reported that room additions were a common activity in 2010, compared to 70 percent in 2004. Conversely, none of the professional remodelers responding to the survey reported that it was common for their companies to perform handyman services in 2004, while 33 percent of remodelers were regularly providing handyman work in the first half of 2010.
"While remodelers are continuing to struggle, we expect the rest of 2010 to be a period of stabilization for remodeling, with the first stages of recovery emerging by the end of the year, followed by a more robust recovery beginning early next year," said NAHB Chief Economist David Crowe. "For now, professional remodelers are taking on smaller projects and working to find consumers willing to spend money despite the economic uncertainty."
For more information about remodeling, visit www.nahb.org/remodel.
Friday, July 30, 2010
Wednesday, July 28, 2010
New-Home Sales Bounce Back from Record Low in June
Coming off an historic low in May, sales of newly built, single-family homes rose 23.6 percent to a seasonally adjusted annual rate of 330,000 units in June, according to U.S. Commerce Department data released today.
“Today’s numbers are an encouraging sign that new-home sales are coming back from an expected slow period that followed the expiration of the home buyer tax credit program,” said Bob Jones, chairman of the National Association of Home Builders (NAHB) and a home builder from Bloomfield Hills, Mich. “While we still have quite a way to go on the path to recovery, it’s good to see that we are headed in the right direction.”
“It’s worth noting that some of the new-home sales in June were due to move-up buyers who were able to sell their previous home to a tax-credit-eligible buyer while that program was active,” said NAHB Chief Economist David Crowe. “Also, while sales activity is still far from robust, it has picked up some momentum as positive factors such as historic low mortgage rates, great selection and attractive prices help draw potential home buyers back to the market. We anticipate that this momentum will continue along with a gradually improving economy, although other factors such as a critical lack of production financing remain a drag on housing’s recovery.”
Sales of new homes rose strongly in three out of four regions in June. The largest percentage increase was the Northeast’s 46.4 percent gain, followed by a 33.1 percent gain in the South and a 20.5 percent gain in the Midwest. The West was the only region where new-home sales did not improve in June, instead falling 6.6 percent to a new record low.
Meanwhile, the nationwide inventory of new homes for sale declined to 210,000 in June, the thinnest it has been since September of 1968. This amounts to a 7.6 months’ supply at the current sales pace.
“Today’s numbers are an encouraging sign that new-home sales are coming back from an expected slow period that followed the expiration of the home buyer tax credit program,” said Bob Jones, chairman of the National Association of Home Builders (NAHB) and a home builder from Bloomfield Hills, Mich. “While we still have quite a way to go on the path to recovery, it’s good to see that we are headed in the right direction.”
“It’s worth noting that some of the new-home sales in June were due to move-up buyers who were able to sell their previous home to a tax-credit-eligible buyer while that program was active,” said NAHB Chief Economist David Crowe. “Also, while sales activity is still far from robust, it has picked up some momentum as positive factors such as historic low mortgage rates, great selection and attractive prices help draw potential home buyers back to the market. We anticipate that this momentum will continue along with a gradually improving economy, although other factors such as a critical lack of production financing remain a drag on housing’s recovery.”
Sales of new homes rose strongly in three out of four regions in June. The largest percentage increase was the Northeast’s 46.4 percent gain, followed by a 33.1 percent gain in the South and a 20.5 percent gain in the Midwest. The West was the only region where new-home sales did not improve in June, instead falling 6.6 percent to a new record low.
Meanwhile, the nationwide inventory of new homes for sale declined to 210,000 in June, the thinnest it has been since September of 1968. This amounts to a 7.6 months’ supply at the current sales pace.
Friday, July 16, 2010
Restoring AD&C Lending Key to Promoting Job and Economic Growth
With the Obama Administration and Federal Reserve this week sponsoring events that focus on how to ease regulatory burdens on the small business community that are constricting job growth, the National Association of Home Builders (NAHB) today urged policymakers to address the lack of financing for housing production that is impeding the housing and economic recovery.
"In normal times, housing accounts for about 17 percent of GDP," said NAHB Chairman Bob Jones, a home builder from Bloomfield Hills, Mich. "However, in the current economic climate, lenders have basically stopped making acquisition, development and construction (AD&C) loans and are calling in existing loans, even when the borrower's payments are current. Policymakers must act now to restore credit availability for viable home building projects; otherwise countless construction jobs will be lost, further jeopardizing the fragile economic recovery."
Federal Reserve Chairman Ben Bernanke said that the objective of a conference today at the Federal Reserve is to develop policies that will support the flow of loans to creditworthy small businesses. Meanwhile, the White House has asked business leaders and lawmakers to attend a jobs summit at the U.S. Chamber of Commerce on Wednesday to help identify regulatory obstacles that are hampering job and economic growth.
NAHB is reaching out to regulators, banks, Administration officials and members of Congress to seek action to reduce regulatory restrictions on AD&C credit and rein in overzealous bank examiners.
The vast majority of NAHB builder members are small businesses situated in communities across the nation who employ workers that contribute to the local economic base. NAHB estimates the one-year local impacts of building 100 single-family homes in a typical metro area result in the creation of 324 local jobs and an additional $21.1 million in local income and $2.2 million in taxes and other revenue for local governments.
Beyond its negative effect on home builders, the lack of AD&C lending has major implications for the economy and the nation, said Jones.
"Over the next decade, population growth will trigger demand for an average of at least 1.7 million additional homes per year," he said. "This translates into five million jobs and significant economic activity, including tax revenue. But without increased AD&C lending, this demand will not be met, jobs will be lost and job creation will suffer."
"In normal times, housing accounts for about 17 percent of GDP," said NAHB Chairman Bob Jones, a home builder from Bloomfield Hills, Mich. "However, in the current economic climate, lenders have basically stopped making acquisition, development and construction (AD&C) loans and are calling in existing loans, even when the borrower's payments are current. Policymakers must act now to restore credit availability for viable home building projects; otherwise countless construction jobs will be lost, further jeopardizing the fragile economic recovery."
Federal Reserve Chairman Ben Bernanke said that the objective of a conference today at the Federal Reserve is to develop policies that will support the flow of loans to creditworthy small businesses. Meanwhile, the White House has asked business leaders and lawmakers to attend a jobs summit at the U.S. Chamber of Commerce on Wednesday to help identify regulatory obstacles that are hampering job and economic growth.
NAHB is reaching out to regulators, banks, Administration officials and members of Congress to seek action to reduce regulatory restrictions on AD&C credit and rein in overzealous bank examiners.
The vast majority of NAHB builder members are small businesses situated in communities across the nation who employ workers that contribute to the local economic base. NAHB estimates the one-year local impacts of building 100 single-family homes in a typical metro area result in the creation of 324 local jobs and an additional $21.1 million in local income and $2.2 million in taxes and other revenue for local governments.
Beyond its negative effect on home builders, the lack of AD&C lending has major implications for the economy and the nation, said Jones.
"Over the next decade, population growth will trigger demand for an average of at least 1.7 million additional homes per year," he said. "This translates into five million jobs and significant economic activity, including tax revenue. But without increased AD&C lending, this demand will not be met, jobs will be lost and job creation will suffer."
Wednesday, June 30, 2010
House Extends Deadline to Sept. for Homebuyer Tax Credit
The U.S. House of Representatives voted to give homebuyers who qualified for a federal tax credit more time to settle on their pending purchases.
The House voted 409-5 to extend the deadline for closing home purchases to Sept. 30. The program initially required borrowers who signed contracts before April 30 to complete paperwork by July 1 to get a tax credit of as much as $8,000.
The House measure accommodates borrowers at risk of being disqualified for the tax credit because lenders and loan servicers aren’t processing mortgages quickly enough. The Senate is considering similar legislation.
“We owe this to the people who have essentially followed the rule who are caught by a closing date,” House Ways and Means Committee Chairman Sander Levin, a Michigan Democrat, said before the vote.
As many as 180,000 homebuyers would lose their tax credit if Congress fails to push back the date, according to the National Association of Realtors, which sought the extension. Transactions at risk include as many as 75,000 short sales, or homes being purchased for less than the existing debt on them.
The House voted 409-5 to extend the deadline for closing home purchases to Sept. 30. The program initially required borrowers who signed contracts before April 30 to complete paperwork by July 1 to get a tax credit of as much as $8,000.
The House measure accommodates borrowers at risk of being disqualified for the tax credit because lenders and loan servicers aren’t processing mortgages quickly enough. The Senate is considering similar legislation.
“We owe this to the people who have essentially followed the rule who are caught by a closing date,” House Ways and Means Committee Chairman Sander Levin, a Michigan Democrat, said before the vote.
As many as 180,000 homebuyers would lose their tax credit if Congress fails to push back the date, according to the National Association of Realtors, which sought the extension. Transactions at risk include as many as 75,000 short sales, or homes being purchased for less than the existing debt on them.
Saturday, June 26, 2010
Top 10 Things You Should Know about Financial Reform
As the United States continues to put plans into action in order to help remedy the country’s financial situation, Americans are waiting optimistically to see the end result of the regulation bill that is moving through both the Senate and House. While the Senate recently approved their version of the big financial regulation bill by a 59-39 vote, the bill has now moved to a conference committee where it will be reconciled with the already passed House bill.
Here are the top 10 things you should know about the financial regulations bill.
1. End of too-big-to fail: If a big financial firm is failing, it will have only one fate: liquidation. There will be no taxpayer funded bailout. Instead, regulators will have the ability to shut down and break apart failing financial firms in a safe, orderly way – without putting the rest of the financial system at risk, and without asking taxpayers to pay a dime.
2. Close loopholes in regulation of major financial firms: Loopholes that allowed firms like Lehman Brothers, Bear Stearns and AIG to operate without tough standards or oversight were major contributors to the financial crisis. Regulatory reform will close these loopholes, and create accountable regulation for all firms that pose the most risk to the financial system. It will end the ability of financial firms to avoid tough standards by manipulating their legal structure.
3. Bring transparency to hedge funds: Financial reform will require advisers to hedge funds to register with the SEC for the first time, bringing transparency and oversight to these unregulated financial firms.
4. Constrain the size of the largest firms: Financial reform will prevent any financial firm from growing by acquisition to more than 10% of the liabilities in the financial system. This will reduce the adverse effects of the failure of any single firm and prevent the further concentration of our financial system.
5. Reform executive pay and strengthen shareholder protections: Financial reform will give shareholders a say in the compensation of senior executives at the companies they own, and require that the compensation committees of corporate boards are independent.
6. Separate banking and speculative trading – the Volcker Rule: Financial reform will protect taxpayers and depositors by separating risky, speculative “proprietary trading” from the business of banking.
7. Strongest consumer protections ever: Instead of seven federal agencies with only partial responsibilities for consumer protection, there will be one agency with the sole responsibility of establishing clear rules of the road for banks, mortgage companies, payday lenders, credit card lenders and other financial service firms and for enforcing these rules. From now on, every consumer will be empowered with the clear and concise information they need to make financial decisions that are best for them.
8. Crack down on the abuses in the mortgage markets at the center of the crisis: Financial reform will ban abusive practices in the mortgage markets, like those where brokers got paid more to put families into higher priced loans than those they qualified for, and require mortgage brokers and banks to consider a family’s ability to repay when making a loan. The reforms will also require lenders and Wall Street loan packagers to keep skin in the game when selling off loans to investors and make full disclosure so investors know what’s in those packages. Reforms of credit rating agencies will help make sure investors do not rely unwisely on their ratings on these packages.
9. Safer, more transparent derivatives market to help Main Street businesses: By bringing the derivatives markets out of the shadows, reform will benefit those businesses that use derivatives to manage their commercial risks. Reform will benefit Main Street companies at the expense of Wall Street’s hidden fees. That’s good for every farmer and every manufacturer that uses derivatives the way they were meant to be used. Derivatives reform also means the taxpayer won’t be on the hook for reckless risks of an AIG.
10. Support long term job growth by helping prevent future crises: By making the financial system safer and stronger, reform will reduce the chances that a financial crisis deprives businesses of the credit they need to grow and to create jobs. Financial reform will ensure businesses a more stable and predictable source of credit through the business cycle and reduce the risk of a sharp and sudden cut-off because of financial panic.
Here are the top 10 things you should know about the financial regulations bill.
1. End of too-big-to fail: If a big financial firm is failing, it will have only one fate: liquidation. There will be no taxpayer funded bailout. Instead, regulators will have the ability to shut down and break apart failing financial firms in a safe, orderly way – without putting the rest of the financial system at risk, and without asking taxpayers to pay a dime.
2. Close loopholes in regulation of major financial firms: Loopholes that allowed firms like Lehman Brothers, Bear Stearns and AIG to operate without tough standards or oversight were major contributors to the financial crisis. Regulatory reform will close these loopholes, and create accountable regulation for all firms that pose the most risk to the financial system. It will end the ability of financial firms to avoid tough standards by manipulating their legal structure.
3. Bring transparency to hedge funds: Financial reform will require advisers to hedge funds to register with the SEC for the first time, bringing transparency and oversight to these unregulated financial firms.
4. Constrain the size of the largest firms: Financial reform will prevent any financial firm from growing by acquisition to more than 10% of the liabilities in the financial system. This will reduce the adverse effects of the failure of any single firm and prevent the further concentration of our financial system.
5. Reform executive pay and strengthen shareholder protections: Financial reform will give shareholders a say in the compensation of senior executives at the companies they own, and require that the compensation committees of corporate boards are independent.
6. Separate banking and speculative trading – the Volcker Rule: Financial reform will protect taxpayers and depositors by separating risky, speculative “proprietary trading” from the business of banking.
7. Strongest consumer protections ever: Instead of seven federal agencies with only partial responsibilities for consumer protection, there will be one agency with the sole responsibility of establishing clear rules of the road for banks, mortgage companies, payday lenders, credit card lenders and other financial service firms and for enforcing these rules. From now on, every consumer will be empowered with the clear and concise information they need to make financial decisions that are best for them.
8. Crack down on the abuses in the mortgage markets at the center of the crisis: Financial reform will ban abusive practices in the mortgage markets, like those where brokers got paid more to put families into higher priced loans than those they qualified for, and require mortgage brokers and banks to consider a family’s ability to repay when making a loan. The reforms will also require lenders and Wall Street loan packagers to keep skin in the game when selling off loans to investors and make full disclosure so investors know what’s in those packages. Reforms of credit rating agencies will help make sure investors do not rely unwisely on their ratings on these packages.
9. Safer, more transparent derivatives market to help Main Street businesses: By bringing the derivatives markets out of the shadows, reform will benefit those businesses that use derivatives to manage their commercial risks. Reform will benefit Main Street companies at the expense of Wall Street’s hidden fees. That’s good for every farmer and every manufacturer that uses derivatives the way they were meant to be used. Derivatives reform also means the taxpayer won’t be on the hook for reckless risks of an AIG.
10. Support long term job growth by helping prevent future crises: By making the financial system safer and stronger, reform will reduce the chances that a financial crisis deprives businesses of the credit they need to grow and to create jobs. Financial reform will ensure businesses a more stable and predictable source of credit through the business cycle and reduce the risk of a sharp and sudden cut-off because of financial panic.
Friday, June 25, 2010
The Home Buyer Tax Credit Is Over, Now What?
The Home Buyer Tax Credit Is Over, Now What? In the aftermath of the deadline for the home-buyer-tax-credit, which advanced a significant amount of housing demand into April, monthly housing indicators turned negative.
Single-family starts fell 17% in May to a seasonally-adjusted annual rate of 468,000, which was a return to the level of May 2009. Single-family permits also dropped to similar year-earlier levels. The June NAHB/Wells Fargo Home builder sentiment index fell back five points to 17. May new home sales plunged 33% to their lowest level on record.
The deadline for signing a purchase contract has passed, but the deadline for closing is June 30 and could be extended to September if legislation already passed in the House passes in the Senate and is signed into law.
Since existing home sales are reported at closing, they are not expected to fall off until July. Nevertheless, they were down 2% to 5.66 million in May, although this could be due in part to a crush of closings causing delays and backlogs.
Putting the May sales decline into perspective, it was preceded by a 15% increase in sales in April. The average sales pace for the two months combined was 373,000, which was a 3% increase over the average for this year’s first quarter. A similar, although smaller, decline occurred in December, when the 2009 home buyer credit was scheduled to expire but was extended.
Beyond the influence of the tax credit, the more volatile multifamily starts jumped 33% to 125,000 in May from April’s 94,000 and multifamily permits were up 10%, suggesting that the apartment market may finally have reached bottom.
While vacancy rates remain high, they are down from their recent peak. Expected improvement in labor markets has also encouraged multifamily developers to begin planning new projects that can easily take one to two years to complete after they receive permits.
The real question now is whether what occurred in May is a harbinger of a housing market still unable to work up enough momentum on its own to sustain a recovery or simply a temporary side-effect of the tax credit doing its job.
Although housing activity in May was generally weaker than anticipated, several factors continue to support NAHB’s forecast for improvements in 2010. Mortgage interest rates are expected to remain at historically low levels for the remainder of 2010, with only a modest increase in 2011. House prices are back to where they were in 2003.
Although prices have been bouncing around, with small positive and negative changes from month to month, some markets have been inching upwards. The economy continues to show improvement in total output and employment growth, a vital element to housing demand. New home inventories are at their lowest level in almost 40 years, and any uptick in demand for new homes will almost certainly require increased residential construction.
From a longer perspective, the U.S. population continues to grow. Household formations have lagged behind trend as a result of the recession, and those unformed households represent the prospect of moves out of the overcrowded homes of friends and relatives.
And the economy in general has been advancing. Industrial production rose 1.2% in May and was up 7.6% from a year earlier. May capacity utilization rose to 74.7% from73.7% in April and 68.5% a year earlier. Retail sales stumbled in May, falling 1.2% from April, but were still up 6.3% from a year earlier. Despite May’s pullback in retail sales, both the University of Michigan’s consumer sentiment index and the Conference Board’s Consumer Confidence Index showed solid improvement for the month.
Meanwhile, according to government estimates, only a little over half of the funds from the American Recovery and Reinvestment Act — $409 billion of the $787 billion — has been distributed, leaving well over $300 billion in economic stimulus yet to come.
These economic and demographic forces are expected to provide sufficient stimulus to slowly push the housing market forward in the second half of this year. Financial Market Turmoil Turmoil in the Euro currency union stemming from fiscal problems in Greece and Spain and some other member countries has spilled over to the U.S. financial markets.
For now, the United States is benefiting from foreign investors seeking safety in Treasury securities and other U.S. fixed-income assets, pushing long-term interest rates lower. Below the 5% threshold for seven consecutive weeks, 30-year, fixed-rate mortgage rates are now among the lowest on record.
Although lower long-term interest rates are a positive for housing and the economy, the rising value of the U.S. dollar against the euro will increase the prices of U.S. exports and dampen demand for them in Europe.
Demand in Europe is likely to weaken further as governments on the continent impose stricter fiscal measures out of concern over their sovereign debt. On balance, lower interest rates but fewer exports will likely impose a minor drag on U.S. economic growth.
Federal Reserve Policy In statements from its June 22-23 meeting, the Federal Open Market Committee (FOMC) has indicated it will be continuing its monetary policy of “exceptionally low” interest rates for an “extended” period.
The FOMC’s assessment of the economy is in alignment with NAHB’s outlook. “The labor market is improving gradually,” and “household spending is …constrained by high unemployment, modest income growth, lower housing wealth, and tight credit,” the Fed said. It acknowledged that “housing starts remain at a depressed level.”
NAHB expects the federal funds rate to remain in the 0.0% to .25% range through the middle of 2011 as a relatively slow and prolonged recovery puts little stress on capacity and resources, keeping inflation in check. Low inflationary expectations, along with the situation in Europe, should help keep mortgage rates low.
NAHB projects that mortgage rates will remain below 6% through 2010 and most of 2011. Inflation Remains Tame The seasonally adjusted monthly Consumer Price Index was down in May for the second month in a row, falling 0.2% following a decline of 0.1% in April, but up 2.0% from a year earlier. Meanwhile, core inflation — excluding food and energy prices — rose a modest 0.9% from a year earlier, a rate consistent with the April data.
For the past year, the rental component of the CPI has been essentially flat, and as of May, it was down 0.1% from a year earlier. Homeownership “prices” are measured by using an owner’s equivalent rent that is largely driven by the rent index without utilities. That measure has also been drifting down — 0.3% over the past year.
The rent and owner components of the CPI make up 31% of the CPI. The soft rental market and excess vacancies have kept rents from rising, which has been a challenge to apartment owners who have seen other costs rising. It also has made it more difficult for multifamily projects to obtain financing.
Once the rental sector begins recovery and rents return to a more normal path, the CPI will also reflect the major influence housing costs have on overall inflation.
The Producer Price Index (PPI) for finished goods also fell for the second month in a row, down 0.3% in May after falling 0.1% in April. The May reading was up 5.3% from a year earlier, though that is down from March’s year-over-year increase of 6.0%.
Despite year-over-year declines in cement and gypsum prices, overall building materials prices in May rose 0.7% for both single-family and multifamily construction, their seventh consecutive monthly increase, and 4.6% and 4.7%, respectively, from a year earlier.
Some near-term price relief is likely at hand, with lumber prices in recent weeks retreating rapidly from their earlier increases.
Single-family starts fell 17% in May to a seasonally-adjusted annual rate of 468,000, which was a return to the level of May 2009. Single-family permits also dropped to similar year-earlier levels. The June NAHB/Wells Fargo Home builder sentiment index fell back five points to 17. May new home sales plunged 33% to their lowest level on record.
The deadline for signing a purchase contract has passed, but the deadline for closing is June 30 and could be extended to September if legislation already passed in the House passes in the Senate and is signed into law.
Since existing home sales are reported at closing, they are not expected to fall off until July. Nevertheless, they were down 2% to 5.66 million in May, although this could be due in part to a crush of closings causing delays and backlogs.
Putting the May sales decline into perspective, it was preceded by a 15% increase in sales in April. The average sales pace for the two months combined was 373,000, which was a 3% increase over the average for this year’s first quarter. A similar, although smaller, decline occurred in December, when the 2009 home buyer credit was scheduled to expire but was extended.
Beyond the influence of the tax credit, the more volatile multifamily starts jumped 33% to 125,000 in May from April’s 94,000 and multifamily permits were up 10%, suggesting that the apartment market may finally have reached bottom.
While vacancy rates remain high, they are down from their recent peak. Expected improvement in labor markets has also encouraged multifamily developers to begin planning new projects that can easily take one to two years to complete after they receive permits.
The real question now is whether what occurred in May is a harbinger of a housing market still unable to work up enough momentum on its own to sustain a recovery or simply a temporary side-effect of the tax credit doing its job.
Although housing activity in May was generally weaker than anticipated, several factors continue to support NAHB’s forecast for improvements in 2010. Mortgage interest rates are expected to remain at historically low levels for the remainder of 2010, with only a modest increase in 2011. House prices are back to where they were in 2003.
Although prices have been bouncing around, with small positive and negative changes from month to month, some markets have been inching upwards. The economy continues to show improvement in total output and employment growth, a vital element to housing demand. New home inventories are at their lowest level in almost 40 years, and any uptick in demand for new homes will almost certainly require increased residential construction.
From a longer perspective, the U.S. population continues to grow. Household formations have lagged behind trend as a result of the recession, and those unformed households represent the prospect of moves out of the overcrowded homes of friends and relatives.
And the economy in general has been advancing. Industrial production rose 1.2% in May and was up 7.6% from a year earlier. May capacity utilization rose to 74.7% from73.7% in April and 68.5% a year earlier. Retail sales stumbled in May, falling 1.2% from April, but were still up 6.3% from a year earlier. Despite May’s pullback in retail sales, both the University of Michigan’s consumer sentiment index and the Conference Board’s Consumer Confidence Index showed solid improvement for the month.
Meanwhile, according to government estimates, only a little over half of the funds from the American Recovery and Reinvestment Act — $409 billion of the $787 billion — has been distributed, leaving well over $300 billion in economic stimulus yet to come.
These economic and demographic forces are expected to provide sufficient stimulus to slowly push the housing market forward in the second half of this year. Financial Market Turmoil Turmoil in the Euro currency union stemming from fiscal problems in Greece and Spain and some other member countries has spilled over to the U.S. financial markets.
For now, the United States is benefiting from foreign investors seeking safety in Treasury securities and other U.S. fixed-income assets, pushing long-term interest rates lower. Below the 5% threshold for seven consecutive weeks, 30-year, fixed-rate mortgage rates are now among the lowest on record.
Although lower long-term interest rates are a positive for housing and the economy, the rising value of the U.S. dollar against the euro will increase the prices of U.S. exports and dampen demand for them in Europe.
Demand in Europe is likely to weaken further as governments on the continent impose stricter fiscal measures out of concern over their sovereign debt. On balance, lower interest rates but fewer exports will likely impose a minor drag on U.S. economic growth.
Federal Reserve Policy In statements from its June 22-23 meeting, the Federal Open Market Committee (FOMC) has indicated it will be continuing its monetary policy of “exceptionally low” interest rates for an “extended” period.
The FOMC’s assessment of the economy is in alignment with NAHB’s outlook. “The labor market is improving gradually,” and “household spending is …constrained by high unemployment, modest income growth, lower housing wealth, and tight credit,” the Fed said. It acknowledged that “housing starts remain at a depressed level.”
NAHB expects the federal funds rate to remain in the 0.0% to .25% range through the middle of 2011 as a relatively slow and prolonged recovery puts little stress on capacity and resources, keeping inflation in check. Low inflationary expectations, along with the situation in Europe, should help keep mortgage rates low.
NAHB projects that mortgage rates will remain below 6% through 2010 and most of 2011. Inflation Remains Tame The seasonally adjusted monthly Consumer Price Index was down in May for the second month in a row, falling 0.2% following a decline of 0.1% in April, but up 2.0% from a year earlier. Meanwhile, core inflation — excluding food and energy prices — rose a modest 0.9% from a year earlier, a rate consistent with the April data.
For the past year, the rental component of the CPI has been essentially flat, and as of May, it was down 0.1% from a year earlier. Homeownership “prices” are measured by using an owner’s equivalent rent that is largely driven by the rent index without utilities. That measure has also been drifting down — 0.3% over the past year.
The rent and owner components of the CPI make up 31% of the CPI. The soft rental market and excess vacancies have kept rents from rising, which has been a challenge to apartment owners who have seen other costs rising. It also has made it more difficult for multifamily projects to obtain financing.
Once the rental sector begins recovery and rents return to a more normal path, the CPI will also reflect the major influence housing costs have on overall inflation.
The Producer Price Index (PPI) for finished goods also fell for the second month in a row, down 0.3% in May after falling 0.1% in April. The May reading was up 5.3% from a year earlier, though that is down from March’s year-over-year increase of 6.0%.
Despite year-over-year declines in cement and gypsum prices, overall building materials prices in May rose 0.7% for both single-family and multifamily construction, their seventh consecutive monthly increase, and 4.6% and 4.7%, respectively, from a year earlier.
Some near-term price relief is likely at hand, with lumber prices in recent weeks retreating rapidly from their earlier increases.
Friday, June 11, 2010
House Passage of FHA Reform Bill
The National Association of Realtors® applauded the House for overwhelming passage of FHA reform legislation that would allow the Federal Housing Administration to adjust monthly premiums on mortgage insurance.
This bill, H.R. 5072, FHA Reform Act of 2010, would strengthen the FHA loan insurance program while keeping it available and affordable to responsible home buyers. Allowing FHA to raise the monthly insurance premium would let FHA lower the up-front premium that places a burden on cash-strapped borrowers at closing.
“As the leading advocate for homeownership and housing issues, NAR is very pleased that FHA will be allowed to play its intended countercyclical role to provide qualified borrowers with access to prime credit. FHA is a critical part of our nation’s economic recovery,” said NAR President Vicki Cox Golder, owner of Vicki L. Cox & Associates in Tucson, Ariz.
En route to passage, the House defeated an amendment that would have increased the FHA down payment from 3.5 percent to 5 percent, which would have disenfranchised more than 300,000 potential homeowners and would not have contributed significantly to FHA cash reserves.
“The current 3.5 percent down payment represents a significant financial commitment and sufficient investment to insure a borrower’s seriousness about homeownership,” said Golder. The proposed change could have an especially harsh impact on African American and Hispanic borrowers, who traditionally have much lower accumulated wealth and have benefited from the opportunities offered by fully documented, standard FHA loans with low down payments.
She also praised FHA’s aggressive efforts to protect taxpayers and manage credit risk.
This bill, H.R. 5072, FHA Reform Act of 2010, would strengthen the FHA loan insurance program while keeping it available and affordable to responsible home buyers. Allowing FHA to raise the monthly insurance premium would let FHA lower the up-front premium that places a burden on cash-strapped borrowers at closing.
“As the leading advocate for homeownership and housing issues, NAR is very pleased that FHA will be allowed to play its intended countercyclical role to provide qualified borrowers with access to prime credit. FHA is a critical part of our nation’s economic recovery,” said NAR President Vicki Cox Golder, owner of Vicki L. Cox & Associates in Tucson, Ariz.
En route to passage, the House defeated an amendment that would have increased the FHA down payment from 3.5 percent to 5 percent, which would have disenfranchised more than 300,000 potential homeowners and would not have contributed significantly to FHA cash reserves.
“The current 3.5 percent down payment represents a significant financial commitment and sufficient investment to insure a borrower’s seriousness about homeownership,” said Golder. The proposed change could have an especially harsh impact on African American and Hispanic borrowers, who traditionally have much lower accumulated wealth and have benefited from the opportunities offered by fully documented, standard FHA loans with low down payments.
She also praised FHA’s aggressive efforts to protect taxpayers and manage credit risk.
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