Posted On June 16, 2017
As expected, the Federal Open Market Committee (FOMC) voted to raise the benchmark interest rate. Mortgage rates did not change drastically following the announcement, increasing slightly according to some sources. The National Association of Home Builders’ (NAHB) housing market index declined slightly. Housing starts and building permits declined.
Though the FOMC rate hike was widely anticipated, some economists posited that inflation is running below the 2% goal. In its statement, the Fed acknowledged the slowed inflationary numbers, but suggested an uptick in consumer spending and the strong labor market were significant enough to move rates. The statement also included plans to start winding down the balance sheet, currently valued at $4.5 trillion.
The NAHB housing market index is a composite report based on builders’ perceptions of current sales, sales expectations for the next six months, and buyer foot traffic. In June, builder confidence dropped slightly to a level of 67, from the downwardly revised May reading of 69. Current sales conditions dropped two points to 73, sales expectations also dropped two points to 76, and buyer foot traffic declined two points to 49. In a statement, NAHB Chief Economist Robert Dietz said, “As the housing market strengthens and more buyers enter the market, builders continue to express their frustration over an ongoing shortage of skilled labor and buildable lots that is impeding stronger growth in the single-family sector.”
Housing starts count ground broken on single family homes. In May, housing starts decreased 5.5% to a level of 1.09 million and building permits decreased 4.9% to a level of 1.17 million. Declines were driven by slowed construction in the South and Midwest. The construction industry is facing labor shortages and limited lot availability.
Inventory constraints continue to be problematic for housing. Builders are struggling to supply the demand, and house prices are going up.