New Home Sales to Increase Even With Higher Rates
The housing recovery is on a normal trajectory and gradual increases in interest rates won’t slow it down, according to Home Builder Lennar CEO Stuart Miller.
With interest rates at historic lows, Miller expects that as rates move up, slight increases “are not going to stop the progress forward” of the housing recovery. “Housing continues to find its rebound and gain strength,” he said. “Over the past five years we have under-constructed for a growing household formation that has been stymied by economic downdrafts.”
Miller estimates that the country needed 1.25 million to 1.5 million homes per year over the past few years, but instead only about 500,000 homes were constructed. “We’re going to have to catch back up in order to serve the needs of a growing population,” he said. “We have to make up for the deficit we’ve had in the past years.”
The key force is a tight supply of housing exacerbated by a lack of land availability, he said. “What you’re seeing with the builders is an inability to really get the land that we need to be able to build the homes to meet the demand,” he said. “So you have inventories that are very, very low, and that is driving prices up.”
Miller also said that the cost of commodities for builders is a “mixed bag” and that prices of homes are rising faster than costs. “I don’t think you can read a lot from costs,” he said, adding that although costs of raw materials are going down, other factors, like labor, are getting more expensive.
“We’re starting to see a real recovery in housing that is not likely to be pulled back,” he said.
What Happened to Rates Last Week:
Mortgage backed securities (MBS) lost -55 basis points from last Friday to the prior Friday which caused 30 year fixed mortgage rates to move upward for the sixth straight week. We had our highest mortgage rateson Friday and our lowest rates on Monday morning.
Manufacturing, as measured by the ISM Index contracted but offsetting that was an expansion in the servicing sector which represents 2/3 of our economy. But last week was all about jobs data and on Friday, we received the much anticipated Non-Farm Payroll Report. Economists were expecting a reading around 170K but traders had been trading at levels that would be reflective of a 150K range. So, when Non-Farm Payrolls came in at a better than expected 175K, MBS sold off which erased the small gains that we had for the week and drove mortgage rates higher for the sixth straight week.
|Date||ET||Economic Release||Actual||Market Expects||Prior|
|11-Jun||10:00 AM||Wholesale Inventories||–||0.20%||0.40%|
|12-Jun||7:00 AM||MBA Mortgage Index||–||NA||-11.50%|
|12-Jun||10:30 AM||Crude Inventories||–||NA||-6.267M|
|12-Jun||2:00 PM||Treasury Budget||–||-$139.0B||-$124.6B|
|13-Jun||8:30 AM||Initial Claims||–||345K||346K|
|13-Jun||8:30 AM||Continuing Claims||–||2973K||2952K|
|13-Jun||8:30 AM||Retail Sales||–||0.30%||0.10%|
|13-Jun||8:30 AM||Retail Sales ex-auto||–||0.30%||-0.20%|
|13-Jun||8:30 AM||Export Prices ex-ag.||–||NA||-0.50%|
|13-Jun||8:30 AM||Import Prices ex-oil||–||NA||-0.20%|
|13-Jun||10:00 AM||Business Inventories||–||0.20%||0.00%|
|13-Jun||10:30 AM||Natural Gas Inventories||–||NA||111 bcf|
|14-Jun||8:30 AM||Core PPI||–||0.10%||0.10%|
|14-Jun||8:30 AM||Current Account Balance||–||-$111.5B||-$110.4B|
|14-Jun||9:15 AM||Industrial Production||–||0.10%||-0.50%|
|14-Jun||9:15 AM||Capacity Utilization||–||77.80%||77.80%|
|14-Jun||9:55 AM||Mich Sentiment||–||83||84.5|
I will be watching these reports closely for you and let you know if there are any big surprises:
It is virtually impossible for you to keep track of what is going on with the economy and other events that can impact the housing and mortgage markets. Just leave it to me, I monitor the live trading of Mortgage Backed Securities which are the only thing government and conventional mortgage rates are based upon.