Market Recap: Housing Market Index Down, Housing Starts and Building Permits Up, Existing Home Sales Rise
In a highly anticipated move, the Federal Open Market Committee (FOMC) voted to raise the Federal benchmark interest rate on Wednesday, to a range of 2.25% to 2.5%. Mortgage rates are expected to move upward to reflect the rate hike. The National Association of Home Builders’ (NAHB) housing market sentiment index declined in December. Both housing starts and building permits increased. Existing home sales also increased.
The NAHB housing market index dropped in December, down from 60 to 56. Any reading above 50 is considered positive. Current sales conditions and sales expectations for the next six months dropped 6 points and 4 points respectively to each read 61. Buyer foot traffic declined to 43. Although the data suggests a construction slowdown is imminent, NAHB Chairman Randy Noel commented, “However, recent declines in mortgage interest rates should help move the market forward in early 2019."
Housing starts and building permits each rebounded in November, driven by strength in multi-family construction. Housing starts increased 3.2% month-over-month to a seasonally adjusted annual rate of 1.256 million units. Building permits jumped 5.0% to a seasonally adjusted annual rate of 1.328 million units. Zillow senior economist, Aaron Terrazas, explained, “the residential construction market hit the pause button in 2018. Speculation has already begun as to whether the construction industry is a macroeconomic canary in the coal mine signaling a larger shift to come.”
Existing home sales or resales also improved in November, up 1.9% month-over-month to a seasonally adjusted annual rate of 5.32 million units. Year-over-year, however, sales are down 7.0%, the largest annual decline in 7 ½ years. At November’s sales pace, it would take 3.9 months to exhaust all available inventory, a substantial drop from October’s 4.3 months, and much lower than the balanced demand of six-to-seven months’ supply. Data suggests the inventory crunch may start to be easing, especially in the West, meaning a less competitive market for buyers in 2019.
A less competitive housing market could be good news for buyers looking to make real estate moves in the coming year. After several years of heavy competition, home buyers may finally get a break. Even with less traffic, prospective home buyers should still get preapproved before shopping for a home. Mortgage financing preapproval is critical to standing out to a home seller and ensuring a faster transaction.
Sources: Bloomberg, CNBC, CNBC, CNBC, Econoday, MarketWatch, Mortgage News Daily