Market Recap: Housing Market Index Steady, Mortgage Apps Mixed, Housing Start and Building Permits Fall

Blog posted On July 20, 2018

Mortgage rates were largely unchanged again this week, not trending significantly up or down.  The National Association of Home Builders’ (NAHB) housing market sentiment index did not move up or down, with builders staying positive about buyer demand.  Mortgage application submissions flipped, with new purchase applications down and refinance applications up.  Housing starts and building permits each declined. 

The NAHB home builders’ sentiment index was unchanged in July, holding steady at 68.  Any reading above 50 is considered positive.  Current sales conditions were unchanged at a level of 74, sales expectations for the next six months fell slightly to a level of 73, and buyer foot traffic jumped to a level of 52.  Continued strong buyer demand has kept home builders positive for much of the past few years.  Although demand is strongest for entry-level starter homes, builders are focused on move-up inventory and luxury homes, where profit margins are highest.  Canadian lumber tariffs and new Chinese steel and aluminum tariffs have only further influenced this focus on building larger homes.  NAHB chief economist Robert Dietz explained, “consumer demand for single-family homes is holding strong this summer.  […] Builders need to manage [building materials] cost increases as they strive to provide competitively priced homes, especially as more first-time home buyers enter the housing market.”   

The Mortgage Bankers Association (MBA) weekly mortgage application survey was mixed again for the week ending 7/13.  This time, new purchase applications declined 5.0% and refinance applications increased 2.0% for a composite decrease of 2.5%.  Although mortgage rates climbed earlier this summer, they have not moved much in the past few weeks.  First-time home buyer demand, especially, is strong.  MBA chief economist, Mike Fratantoni explained, “The mix of business changed, with FHA purchase volume increasing as conventional and VA volume decreased.  This indicates that more first-time buyers are entering the market, even as the market as a whole continues to be restricted by tight inventories of homes available for sale.”

Housing starts and building permits stumbled in June, each declining.  Housing starts dropped 12.3% month-over-month to a seasonally adjusted annual rate of 1.173 million.  Building permits are down 2.2% month-over-month to a seasonally adjusted annual rate of 1.273 million.  Home builders are under pressure in terms of labor shortages and higher materials costs.  The unchanged builder sentiment index indicates construction activity is not likely to accelerate any time soon.  Some buyers are unwilling to wait for new construction and builders are unable to lower costs because of narrowing profit margins. 

Despite the construction slowdown, buyer demand is still strong and this summer’s housing market has stayed competitive.  Most listings are receiving multiple offers within a few days of going live.  Buyers looking to compete in today’s market should partner with a mortgage lender that can ensure a timely transaction.  Getting preapproved for a mortgage before shopping is imperative in today’s market.  Buyers who are preapproved are more attractive to the seller, who is likely about to enter the busy housing market as well. 

Sources: CNBC, CNBC, Econoday, MarketWatch, Mortgage News Daily