Flat Builder Confidence, Stabilizing Interest Rates and Falling Delinquency: The Week in Housing
When will builder confidence rise? Are things still that bad for the home-builders? Interest rates have been highly actively over the last 90 days; where do they head from here? A new report from the Mortgage Bankers will cast doubt over those who don’t believe a housing recovery is in progress.
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Builder Confidence: Unchanged
The National Association of Home Builders released its Housing Market Index this week. The index, which measures builder confidence, reported a fourth consecutive 16. Housing analysts were expecting a 17 or a slight improvement. Anything over 50 is considered healthy.
Builders continue to be mired in financing problems as evidenced by the recent decline in single-family housing starts (housing starts were up in general 14% but single-family declined). Without financing builders can’t start building new housing. Many who have survived the housing crisis up this point aren’t fully through with the recovery process. Destroyed balance sheets, and low cash positions have made lending to builders very risky for banks. Many of these are still holding vacant lot inventory as well.
Rates Fall Back, Slightly
A week after a .25% jump in mortgage rates, Freddie Mac reported lower mortgage rates. The 30-year fixed mortgage rate dropped from 5.05% to 5.0%. The 15-year fixed rate pulled back from 4.29% to 4.27%. In the last year, the 30-year fixed is now slightly higher than a year ago when it registered at 4.93%. The 15-year fixed is slightly less than a year ago when it was 4.33%.
Interest rates dipped slightly following last week’s big run up. The economy continues to improve causing investors to get more cautious about inflation. This is driving interest rates up. While 5% rates are still low, they are now closing in to 1% over cyclical lows hit less than 90-days ago. It’s hard to envision just a short year ago talking about a big decline in rates coming; now we’re faced with quite the opposite. Higher rates mean lower cash flow as the interest rates move faster than rents.
Mortgage delinquency rates (defined as a 1 payment past due or more, but not in foreclosure) fell to 8.3% at the end of 2010. Delinquency rates are 91 bps below Q3 2010 and 1.25 bps below 1 year ago. Serious delinquency (loans 90-days past due or later) stood at 8.57%, down 13 bps from last quarter and 110 bps below Q4 2009.
Early stage delinquency continues to fall as does serious delinquency signaling an end to shadow foreclosure inventories once they cycle through. Early stage delinquency is even below pre-recession levels, (hopefully) quelling those who doubt housing’s recovery.
This week we’ll see some critical housing data including; Case-Shiller’s December Home Price Index, Existing Home Sales from the Nationals Association of Realtors, an interest rates update from Freddie Mac, mortgage purchase applications from the MBA, and the Census Bureau reports New Home Sales. I’m expecting we’ll see a slight decline in home prices from Case-Shiller and flat to slight negative existing home sales from NAR.