Builder’s Optimism in the Housing Market Continues
The subprime mortgage crisis, or the subprime crisis as it is more commonly known, began in 2007 in the United States. It led to a kind of domino effect that heralded the start of a recession, not just in the US, but with far-reaching consequences across the globe.
One of the triggers was a massive decline in the prices of homes that followed the collapse of what is called the housing bubble. This lead to large-scale mortgage delinquencies, devaluation of housing-related securities such as Mortgage-backed security (MBS) and widespread foreclosures.
This widespread upheaval has since affected the growth of the economy and the spending habits of US residents for several years.
There has, however, been a recent change in this scenario.
Upswing in Investor Sentiments
This change has been occurring since March of this year, when the index of builder confidence for newly built, single-family homes, of Wells Fargo and The National Association of Home Builders (NAHB) reached 71, the highest since June 2005. It has since settled back down to 70 where it’s stayed since May 2017.
This shows that despite shortages in labor and lots and grappling with increased costs in the form of building material, builders’ optimism is going up. The market is bullish about current sales levels for the next six months.
Roadblocks to the Future
There could, however, be some roadblocks to increasing in housing activity in the near future, due to higher mortgage rates.
Housing starts for the multi-family housing segment, which is generally perceived to be more volatile, dropped 9.2% to a pace of 337,000 units. They have declined for four straight months.
Further, building permits also fell 2.5%, driven by a 4.5% drop in the single-family segment. Conversely, multi-family permits rose 1.4 percent.
Single-family homebuilding, which currently accounts for the largest share of the residential housing market, rebounded last month 0.4% to a pace of 835,000 units.
Single-family starts swelled 19.4% in the Midwest and went ahead 9.1% in the West. The number went down 3.4% in the South and topped 29.2% in the Northeast.
Reasons for Drop In Starts
A few of the drop in starts, particularly in the Northeast, could possibly be weather-related after a bad snowstorm the area in March. Demand for housing continues to be reinforced by a tightening labor market, accompanied by an unemployment rate at a 10-year low of 4.4%.