Market Forecast: Housing Market Index, Mortgage Applications, and Housing Starts and Building Permits

Blog posted On May 14, 2018

Mortgage rates started to level off last week, amidst influence from global economic changes.  The National Association of Home Builders (NAHB) will release its housing market sentiment index on Tuesday and it’s likely to remain positive.  Housing starts and building permits come out on Wednesday.  The Mortgage Bankers Association (MBA) will also release its weekly mortgage application survey on Wednesday.

Sustained buyer demand has boosted home builder confidence for much of the past few years.  Limited for-sale inventory has pressured builders to replenish supply.  In April, the NAHB housing market index scaled back slightly to a level of 69.  Current sales conditions fell to 75 and sales expectations for the next six months dropped to 77.  Buyer foot traffic remained unchanged at 51. Any reading above 50 is considered positive.  NAHB chief economist Robert Dietz attributed last month’s dip to an unseasonably long winter stalling construction activity in some regions.  He explained, “ongoing employment gains, rising wages and favorable demographics should spur demand for single-family homes in the months ahead.” 

Housing starts track ground broken on residential projects and building permits track permits issued.  Housing starts improved in March, up 1.9% to a seasonally adjusted annual rate of 1.319 million units.  Building permits also improved, up 2.5% to a seasonally adjusted annual rate of 1.354 million units.  Buyer demand for single-family housing is strong, but the construction industry faces some obstacles in the form of Canadian lumber tariffs and other possible tariffs.   The rising costs of materials could lead to further home price appreciation.

For the week ending 5/4, the weekly mortgage application survey declined 0.4%, pushed by a drop in refinance activity.  Refinance application submissions declined 1.0%, and new purchase application submissions dropped a slight 0.2%.  Refinance activity is expected to contract this year, as most homeowners interested in refinancing have already secured a lower rate.  When home values rise and general refinance activity slows, cash-out refinance activity, specifically, increases, as homeowners take advantage of valuable equity. 

The purchase market will likely stay competitive this year, with buyer demand outpacing supply.  Builders have a significant opportunity to replenish inventory and fulfill this strong demand.  Buyers who are having a hard time finding a home can consider expanding their search to a larger area or even a larger variety of homes.  Choosing a “fixer-upper” or other home in need of repair or renovation and financing with a renovation loan is one way to expedite the home search, combine purchase and renovation costs, and in some cases even save money on the purchase. 

Sources: Bloomberg, CNBC, CNBC, HousingWire, MarketWatch, Mortgage News Daily