Record-low borrowing costs and cheaper properties are spurring sales and helping mend an industry more than three years after the end of the recession. To help bolster the economy and employment, the Federal Reserve announced last week a plan for open-ended purchases of mortgage-backed securities.
“I do think that we’re getting close to the point where we are going to get some sort of significant contribution from housing,” said Mark Vitner, a senior economist at Wells Fargo Securities LLC in Charlotte, North Carolina. At the same time, “there’s still a lot of headwinds in place -- a lot of potential buyers lack the equity and savings to trade up.”
|(Photo credit: Wikipedia)|
Sales of new properties made up 6.7 percent of the residential market in 2011, down from a high of 15 percent during the boom of the past decade. Last year marked the worst year for the industry in records going back to 1963, as builders sold 306,000 new homes, down from 323,000 in 2010.
A report from the National Association of Home Builders and Wells Fargo on Sept. 18 may show builder confidence climbed to the highest level since February 2007, according to a Bloomberg survey.
Real estate developer and forest-products company Weyerhaeuser Co. (WY) is seeing improvement in the housing market even as concern about domestic fiscal policy tempers optimism. The Federal Way, Washington-based company’s year-over-year home sales are up about 40 percent, Patricia Bedient, executive vice president and chief financial officer, said at a Sept. 12 conference.
“Traditionally you wouldn’t expect a housing market to be increasing seasonally for this period of time, but it appears to continue to improve,” Bedient said. “Lest we get too excited, I think it will be steadily improving but probably a slow recovery subject to whatever happens at the end of this year.”
Borrowing costs remain favorable. The average rate on a 30- year fixed mortgage held at 3.55 percent in the week ended Sept. 13, near a record-low of 3.49 reported July 26 in data dating to 1971, according to McLean, Virginia-based Freddie Mac.
Investors have become more upbeat about housing. The Standard & Poor’s Supercomposite Homebuilding Index (S15HOME) has advanced 83 percent so far this year, outpacing an almost 17 percent gain in the broader S&P 500. (SPX)
The lack of progress in the labor market persuaded the Fed to announce further accommodation last week. The Fed said it will expand its holdings of long-term securities with open-ended purchases of $40 billion of mortgage debt a month in a third round of quantitative easing as it seeks to boost growth and reduce unemployment.
“If the outlook for the labor market does not improve substantially, the committee will continue its purchases of agency mortgage-backed securities, undertake additional asset purchases and employ its other policy tools as appropriate,” the Federal Open Market Committee said Sept. 13 in a statement at the end of a two-day meeting in Washington.
The FOMC said it would probably hold the federal funds rate near zero “at least through mid-2015.” Since January, the Fed had said the rate was likely to stay low at least through late 2014. The Fed said “a highly accommodative stance of monetary policy will remain appropriate for a considerable time after the economic recovery strengthens.”
Manufacturing has been weakening along with the global economy. A Federal Reserve Bank of New York report on Sept. 17 may show manufacturing in the New York area contracted for a second straight month in September, according to the Bloomberg survey median. The Federal Reserve Bank of Philadelphia is forecast to report on Sept. 20 that manufacturing shrank for a fifth consecutive month, another Bloomberg survey projects.
Bloomberg Survey =============================================================== Release Period Prior Median Indicator Date Value Forecast =============================================================== Empire Manu. Index 9/17 Sept. -5.9 -2.0 NAHB Housing Index 9/18 Sept. 37 38 Housing Starts ,000’s 9/19 Aug. 746 765 Housing Starts MOM% 9/19 Aug. -1.1% 2.6% Building Permits ,000’s 9/19 Aug. 811 795 Building Permits MOM% 9/19 Aug. 6.7% -2.0% Exist Homes Mlns 9/19 Aug. 4.47 4.56 Exist Homes MOM% 9/19 Aug. 2.3% 2.0% Initial Claims ,000’s 9/20 15-Sep 382 375 Philly Fed Index 9/20 Sept. -7.1 -4.0 LEI MOM% 9/20 Aug. 0.4% -0.1% ===============================================================
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By Michelle Jamrisko - Sep 16, 2012 11:01 AM GMT+0700