Housing Starts Take Step Back
Builders aren’t getting much relief lately. The Census Bureau reported housing starts fell 22.5% in February to a seasonally adjusted annual rate of 479,000 over January of this year. This is just 2,000 units off the all-time low in April 2009 (at the height of the crisis). Year-over-year February housing starts were down 20%. Single-family starts fared slightly better but were down 11.8% over January.
Housing starts dropped off a cliff in February. At first I thought this could be in part due to the harsh weather, but February conditions were better. Builder confidence remains very low and permits were also down. The Census Bureau also reported on single-family permits; they were down a little over 9% in February. This seems like a pretty big reversal from projected improvements in both categories this year. The home-building industry is still reeling.
Rates Get Favorable
March has been a good month for interest rates and this week was no different. Freddie Mac reported a 12 bps decline in the 30-year fixed mortgage rate from 4.88% to 4.76%. The 15-year dropped sharply as well from 4.15% to 4.97%. International turmoil over the Japan Crisis has caused a temporary flight to US Treasury Bonds pushing rates down.
Rates are down more than a quarter of a percent from the 5.05% hit the week of February 10th. This should spur some refinance activity in next week’s Mortgage Banker Association report as well improve purchase application volume. Unfortunately I believe the rate drops are temporary. A year from now, I think we’ll see rates much higher than today. Prices are rising and I won’t be surprised if we see the Fed get involved in raising rates this year.
Vacant Home Everywhere
Vacant homes are literally everywhere and almost no state has been immune to the crisis. Bill McBride over at Calculated Risk posted the data tables from the 2010 Census (so far). At this point, numbers on 83% of the population have been released. The data shows that some states are sitting at 15%+ of the housing stock being vacant including; Arizona 16.3% and Florida 17.5%.
What’s most interesting from the data is the high rate of housing vacancy in non-foreclosure leading states such as Vermont 20.5%, Montana 15.2%, and Delaware 15.7%. While we’re far from the end of the crisis, we should see vacancy rates go down considerably over the next 24 months. We just discussed the lack of building and the population is still growing. Also as the economy continues to improve, household formation will cut into housing vacancy.
Builder Confidence Rise is Marginal
As we were discussing above, builder confidence is still low. The National Association of Home Builders did report a small rise in builder confidence this week. The Housing Market Index improved by 1 point from 15 to 16. Anything over a 50 is considered healthy.
Not much to say here. Home building is lagging the rest of the housing recovery. Financing conditions for builders is still ugly as many banks are sitting on lots and are reluctant to lend to builders. It’s a double-edged sword for builders. They can’t get financing to purchase the excess lots and few investors want to speculate.
Thoughts on Rental Stock
At first glance, there is little to be excited about this week in housing. A report earlier in the week interviewing Peggy Alford at Rent.com about the potential for double digit rent increases looming, plus the disappointing report on housing starts could foreshadow a crunch on available rental inventory. I doubt this will be severe as reported though. There is still a large backlog of homes coming on the market. And with 23% of all home sales being bought by investors, you can count on plenty of rental inventory for a while.