Posted On December 22, 2017
Mortgage rates started to trend upward this week, following last week’s federal interest rate hike. Tax reform took center stage, dominating most of the news circuit as the House of Representatives and the Senate hammered out the details of their plans and reached a compromise. This week, home builder confidence hit an 18-year high. Housing starts improved, but building permits declined slightly. Existing home sales hit an 11-year high.
The National Association of Home Builders’ (NAHB) housing market sentiment index hit a record high in December. The index is up to a level of 74 in December, the highest reading since 1999. Current sales conditions surged to 81, sales expectations for the next six months hit 79, and buyer foot traffic increased to 58. Any reading above 50 is considered positive. Although the NAHB opposes the proposed cuts to mortgage interest deduction and property tax deductions, the business-related tax cuts are building confidence.
Housing starts measure ground broken on residential projects and building permits track permits issued. In November, housing starts improved 3.3% to a level of 1.297 million and building permits dropped 1.4% to a level of 1.298 million. Specifically, single-family housing starts are up, 5.3% in November, aligning with the strong gains in home builder confidence. Trulia Chief Economist Ralph McLaughlin spoke favorably on 2018 predictions stating, “the homebuilding recovery has proven to be slow and steady, so home buyers will need to continue to exercise patience in the years ahead until a healthy stream of new inventory arrives.”
Existing home sales and resales make up the majority of real estate transactions. In November, existing home sales exceeded expectations, up 5.6% to a seasonally adjusted annual rate of 5.81 million, the highest level since December 2006. Sales were driven by an 8.4% gain in the Midwest and an 8.3% gain in the South. Sales in the Northeast were up 6.7%, but sales in the west were down 2.3%.
There continues to be a downward trend in first-time home buyers, hovering a level of 29% of monthly real estate transactions. Housing professionals suggest first-time home buyers should make up 40% of real estate transactions in a strong housing market.