Behind the Numbers: Housing Starts Fall

Associated Press
Builders started construction on fewer U.S. homes in December.

It wasn’t exactly a banner December for the home-building industry.

The nation’s builders started construction on 4.1% fewer homes compared with a month earlier. Construction decreased to a seasonally adjusted annual rate of 657,000 in December, the Commerce Department said Thursday.

But the news wasn’t all gloomy. The main reason for the monthly decline was a more than 20% drop in construction of multifamily homes with at least two units, a part of the market that tends to swing around a lot.

Other data were more positive. Analysts often pay more attention to the single-family sector, which made up more than 70% of housing starts in December. Single-family construction was actually up 4.4% from a month earlier and reached the highest level since April 2010 – a time when builders were ramping up construction in response to a government tax credit for first-time home buyers.

The housing sector is gradually, tentatively, slowly healing after a collapse in prices that started 5 1/2 years ago. There have been some encouraging signs of late, and builders have been growing more optimistic.

But it’s clear that there’s a long way to go. Since 1959, there have been about 1.5 million new homes started per year, on average. Last year, construction was started on only 607,000 homes – the best year since 2008, but still the third-worst year since the government began keeping records.

Here’s what some industry watchers had to say:

Paul Diggle, economist, Capital Economics: “With demand set to improve this year, we think that homebuilding is past the low-water mark and will rise modestly in 2012. We expect housing starts to rise to about 750,000 this year in response to stronger demand, which will be supported by an extremely favorable valuation and affordability environment and a slight loosening in credit conditions. That said, with household formation still low and new builds competing with a steady influx of foreclosed properties, it may not be until 2015 at the earliest that starts reach healthy levels of around one million a year.”

Michael Gapen, economist Barclays Capital: “We view the softness in the headline number as mainly reflecting month-to-month volatility in the multifamily starts component and see underlying trends in both single- and multi-family starts, along with building permits, as suggesting the recent modest momentum in home building remains in place. We continue to see residential investment as making a small positive contribution to (fourth-quarter economic) growth and believe housing will not pose a drag on the recovery as it has in the past. “

Michelle Meyer, economist, Bank of America-Merrill Lynch: “The drop in multifamily starts reversed the gain in November, which reflects the noisy nature of the data. In 2011, multifamily starts are up 55% while single-family are down 9%. Looking ahead to this year, we expect a similar size gain in multifamily starts this year and little change in single family starts, leaving total housing starts to average about 710,000, up from 607,000 in 2011. While this is a decent percentage gain, it is only a modest pickup in the number of homes constructed, therefore only providing a small boost to the economy.”

Kevin Logan, chief U.S. economist, HSBC: “Month-to-month changes in housing starts are erratic, not least of all because of variations in the weather across the country. Not much should be made of one month’s decline. For the year, housing starts rose 3.7% compared to 2010. Starts of multifamily residences provided all of the strength… This pattern is likely to persist in 2012, with strong gains in multifamily starts outpacing the single-family sector.”

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December Housing Starts and Permits Figures Sag

Building permits and housing starts in
December were both below levels reported in November ‘according to data
released this morning by the Department of Housing and Urban Development (HUD)
and the Census Bureau.  Both statistics
were, however, well above the levels one year earlier.

Building permits for privately owned
housing units were at a seasonally adjusted annual rate of 679,000, 0.1 percent
below the revised November rate of 680,000. 
Permitting activity was 7.8 percent higher than in December 2010 when
the pace of permits was 630,000.  The
November figure was revised downward from the 681,000 originally reported.

Permits were issued for single-family
houses at the rate of 444,000, up 1.8 percent from the 436,000 reported in
November.  Multi-family authorizations
(permits in buildings with five or more units) were at a rate of 209,000
compared to 223,000 in November.

The report estimates that there were 611,900
housing units issued during the whole of 2011, a 1.2 percent increase over the
604,600 issued in 2010.

On a regional basis, permitting
increased month-over-month in the Midwest by 5.8 percent and was up 13.4
percent on an annual basis.  Permits in
the West were unchanged from November and down 1.2 percent year-over-year.   Permitting fell 6.5 percent in the Northeast
and was 36.8 percent below that of one year ago while the South had a
fractional -0.6 percent change since November but permitting was still up 31.1
percent for the year.

Building Permits

Click Here to View the Housing Permits Chart

Privately-owned housing starts in
December were at a seasonally adjusted rate of 657,000, 4.1 percent below the
revised November estimate of 685,000 but a 24.9 percent increase from the
December 2010 rate of 526,000.  
Single-family starts were at a rate of 470,000, up 4.4 percent from the
previous month’s pace of 450,000 and 11.6 percent higher than in December 2010. 

There were an estimated 606,900 housing
units for which construction was started in 2011 compared to 586,900 in
2010.  This is an increase of 3.4
percent.

There were strong regional differences
in housing starts.  The Midwest saw a
jump of 54.8 percent in housing starts since November and a year-over-year
increase of 121.5 percent.  The other
regions did not fare nearly as well.  The
Northeast was down 41.2 percent for the month and 1.7 percent since December
2010.  The change in the South was -3.0
percent for the month and 19.0 percent for the year, and the West was down
-17.6 percent since November but up 1.5 percent annually.

Housing Starts

Click Here to View the Housing Starts Chart

Housing completions in December were at
a seasonally adjusted annual rate of 605,000, up 9.2 percent from the upwardly revised
(from 542,000) November figure of 554,000. 
Single family completions were at a rate of 448,000, a -0.9 percent monthly
change.

An estimated 583,900 housing units were
completed during 2011, 10.4 percent below the 2010 figure of 651,700.  At year’s end there were an estimated 78,800
permits that had been issued but for which work had not yet been started.  More than half of these permits (43,100) were
in the South.

…(read more)

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Builder Confidence Index At 54 Month High

Home builder confidence rose in January
for the fourth consecutive month as builders saw more buyer traffic and
anticipated higher sales.  The National
Association of Home Builders (NAHB)/Wells Fargo Housing Market Index (HMI) rose
four points to 25
in January to reach its highest level since June 2007.  Each of the three components of the HMI also
increased for the fourth month and the improved confidence was evident across
every region of the country.

The HMI is the result of a monthly
survey of NAHB has conducted for 20 years. 
The survey asks the Association’s home builder members their perceptions
of current single-family home sales and their expectations for such sales over
the next six months, each graded on a scale of “good,” “fair,” or “poor.”  The survey also asks builders to rate the
current traffic of prospective buyers as “high to very high,” “average,” or “low
to very low.”  Answers to each question
are used to calculate a component index and those comprise the composite
index.  For each index a number over 50
indicates more builders view conditions as good than as poor.

Each of the three component indices rose
three points in January.  The component
measuring current sales conditions is at 25 and the index measuring traffic of
prospective buyers is at 21, the highest point for each since June 2007; the
index reflecting expectations for the next six months rose to 29, the highest score
September 2009.

Bob Nielsen, NAHB chairman said of the
results, “This good news comes on the heels of several months of gains in
single-family housing starts and sales, and is yet another indication of the
gradual but steady improvement that is beginning to take hold in an increasing
number of housing markets nationwide. Policymakers must now take every
precaution to avoid derailing this nascent recovery.”

“Builders are seeing greater interest among potential buyers as employment
and consumer confidence slowly improve in a growing number of markets, and this
has helped to move the confidence gauge up from near-historic lows in the first
half of 2011,” noted NAHB Chief Economist David Crowe. “That said,
caution remains the word of the day as many builders continue to voice concerns
about potential clients being unable to qualify for an affordable mortgage,
appraisals coming through below construction cost, and the continuing flow of
foreclosed properties hitting the market.”

The HMI also posted gains in all four regions in January, including a
nine-point gain to 23 in the Northeast, a one-point gain to 24 in the Midwest,
a two-point gain to 27 in the South and a five-point gain to 21 in the West.

…(read more)

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Refi Activity Hits Highest Level Since August

By Drew FitzGerald

The number of mortgage applications filed in the U.S. last week jumped 23% from the prior week, the Mortgage Bankers Association said Wednesday, as a surge in refinance applications drove new loans.

Refinance activity climbed 26%, its highest level since August, according to the MBA’s weekly survey, which covers more than three-quarters of all U.S. retail residential mortgage applications. Purchasing rose by a seasonally adjusted 10% during the week ended Friday.

Interest rates reached new lows near the end of 2011, but the flow of new mortgages has varied from week to week.

MBA Vice President Michael Fratantoni said ongoing worries about the economic situation in Europe continued to push down U.S. interest rates last week. ”With mortgage rates reaching new lows, refinance volume jumped,” he said. “Purchase activity also increased as buyers returned to the market after the holiday season.”

European Pressphoto Agency
Low mortgage rates have helped spur refinancing activity. Shown here are rates advertised in December.

The four-week moving average for all mortgage applications is up 6%, mostly due to last week’s volume jump.

The share of applications filed to refinance an existing mortgage increased to 82.2% of total applications, from 80.8% the previous week, the highest level since October 2010.

Adjustable-rate mortgages made up 5.6% of activity last week, up from 5.4% a week earlier.

The average rate on 30-year fixed-rate mortgages with conforming loan balances dropped to 4.06% from 4.11%, while rates on similar mortgages with jumbo loan balances increased to 4.4% from 4.34%. The average rate on FHA-backed 30-year fixed-rate mortgages slipped to 3.91% from 3.96%.

The average for 15-year fixed-rate mortgages fell to 3.33% from 3.4%, while the 5/1 ARM average stayed flat at 2.9%.

Refinance Applications Surge 26.4% as Rates Set New Lows

Mortgage applications jumped 23.1
percent on a seasonally adjusted basis during the week ended January 13,
2012.  The increase in the Market
Composite Index, a measure of loan application volume maintained by the
Mortgage Bankers Association (MBA) reflected improvements in both the purchase
and refinance business following the traditionally slow Christmas and New Year
holiday period.  On an unadjusted basis
the index increased 38.1 percent.

The Refinance Index increased 26.4
percent
from the week ended January 6 to its highest point since August 8,
2011.  The seasonally adjusted Purchase
Index rose 10.3 percent, returning to pre-holiday levels.  The unadjusted Purchase Index was up 28.4
percent from the previous week and was 2.2 percent higher than during the same
week in 2011.

The four-week moving average for each
index also increased; the Composite Index increased by 5.99 percent, the
seasonally adjusted Purchase Index by 1.96 percent and the Refinance Index by
7.0 percent.

Refinancing took an 82.2 percent share
of all application activity, up from 80.8 percent the previous week and the
highest share since October 22, 2010.  Applications
for adjustable rate mortgages (ARMs) constituted represented a 5.6 percent
share of applications, up two basis points from the previous week.

Purchase Index vs 30 Yr Fixed

Click Here to View the Purchase Applications Chart

Refinance Index vs 30 Yr Fixed

Click Here to View the Refinance Applications Chart

 “Interest
rates
dropped last week due to continuing anxieties regarding the fragile
economic situation in Europe,” said Michael Fratantoni, MBA’s Vice
President of Research and Economics.  “With mortgage rates reaching
new lows, refinance volume jumped and MBA’s refinance index reached its highest
level in the last six months.  Purchase activity also increased as buyers
returned to the market after the holiday season.”

With
the exception of jumbo loans (with balances over $417,500) interest rates continued
their downward trend. Three of the rates, in fact, hit the lowest level in the
history of the MBA applications survey.  The
jumbo rate – for 30-year fixed-rate (FRM) loans – increased to 4.40 percent
from 4.34 percent with points decreasing to 0.37 from 0.47 point.  The effective rate also increased.

Thirty-year
FRM with conforming (under $417,500) balances hit a new low, decreasing to 4.06
percent with 0.48 point from 4.11 percent with 0.41 point. The effective rate
also decreased.

Rates
for FHA guaranteed 30-year FRM were
at 3.91 percent with 0.59 point, the lowest FHA
rate in the history of MBA’s application survey, down from 3.96 percent with 0.72 point.  The effective rate also decreased from the previous week.

The
third all-time low is the 3.33 percent rate with 0.39 point for the 15-year FRM. 
This was a drop from 3.40 percent with 0.37 point rate the previous week.  The effective rate also decreased.

The
average contract interest rate for 5/1
ARMs was unchanged at the record low 2.90 percent established the previous
week.  Points decreased to 0.45 from 0.49.   The
effective rate also decreased from last week.

All
rates quoted are for 80 percent loan-to-value originations and points include
the application fee.

 MBA’s covers
over 75 percent of all U.S. retail residential mortgage applications, and has
been conducted weekly since 1990.  Respondents include mortgage bankers,
commercial banks and thrifts.  Base period and value for all indexes is
March 16, 1990=100.

…(read more)

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