US housing update | FT Alphaville

US housing update

If you haven’t been reading your daily Calculated Risk, the analysts at CreditSights have a useful roundup of this week’s mostly positive US housing data:

There was a swathe of data on the U.S. housing market out this week, which continued tounderscore that the nascent real estate recovery is becoming more convincing, although inabsolute terms it remains a soft recovery.

— The strongest data was existing home sales, which jumped for a second consecutive month, rising 7.8 percent in August to an annual unit rateof 4.82 mn. This broad-based increase (all regions showed high single-digit gains) was the largest monthly percentage gain since last August and it lifted sales to the highest rate since May 2010.

— That is tightening up the supply side of the equation, which is now at 6.1 months.

Housing starts data was less robust and failed to meet expectations but the recent mild uptrend continued into August as starts advanced 2.3 percent to a 0.750 mn pace. The increase was concentrated in single-family starts, which gained 5.5 percent where as the multifamily component, declined 4.9 percent.

— Additionally, confidence among homebuilders grew to yet another cycle high this past month, with the NAHB, Wells Fargo Homebuilders Confidence Index inching up to 40 in September. This marks the index’s highest level since June 2006 in the early stages of the housing market free-fall. Builders are making more meaningful moves to grow community count and prepare for a more sustained recovery, increasing construction, building up balance sheets, and improving liquidity in order to fund land acquisitions and development.

Next week we’ll get August new home sales and pending home sales.

Though as usual, no description of the improving housing situation feels complete without some mention of lending standards and and the mysteriously widened gap between MBS yields and mortgage rates, about which we’ll have more in an upcoming post.

CreditSights analysts add:

Although the more optimistic tone in the market is clearly evident, we still expect the mortgage market to act as a notable headwind for quite some time. Mortgage applications sagged in the week of September 14, down 4.0 percent following an 8.0 percents urge during the holiday-shortened, prior week. However, applications for refinancing rose 1.0 percent as mortgage rates moved lower. The rate for 30-year fixed mortgages with a conforming balance (under $417,500) averaged 3.72 percent, a 3 bp decline on the week that took the level to a record low.

The Fed can’t do much about lending standards and whatever else is fundamentally impairing the mortgage market. By targeting agency MBS and signalling last week that the central bank will keep buying longer-term securities for some time, Bernanke has done what he can to influence rates. (That’s in addition to the hoped-for asset re-inflation collateral effect on houses).

And the forceful commitment to keeping rates low for a while might incentivise banks to accelerate their mortgage origination capacity, at least to the extent that banks didn’t previously believe that low rates were here to stay. We said might.

Related links:
Past as predictor for construction and manufacturing employment – FT Alphaville
Still waiting on looser lending standards – FT Alphaville