Home Builder Sentiment Best in 20 Years

A stronger economy and a severe housing shortage have the nation’s home builders feeling better than they have in two decades.

Builder confidence in the newly built, single-family home market jumped 5 points in December to 76, the highest reading since June 1999, according to the National Association of Home Builders Housing Market Index. Anything above 50 is considered positive.

November’s reading was also revised higher by 1 point. To put that into perspective, the index stood at 56 last December and in 2009 which was at the worst of the housing crash, builder sentiment hit a low of just 8.

“Builders are continuing to see the housing rebound that began in the spring, supported by a low supply of existing homes, low mortgage rates and a strong labor market,” said NAHB Chairman Greg Ugalde, a home builder and developer from Torrington, Conn.

Builders’ confidence is clearly based on what they’re seeing in their showrooms. Of the index’s three components, current sales conditions rose 7 points to 84, sales expectations in the next six months rose 1 point to 79 and buyer traffic increased 4 points to 58.

Source: The National Association of Home Builders

What Happened to Rates Last Week?

 

Mortgage backed securities (FNMA 3.500 MBS) gained +10 basis point (BPS) from last Friday’s close which caused fixed mortgage rates to remain at or near the same levels as the prior week.

Overview: We had a very big week! Our Federal Reserve kept their key interest rate unchanged and told the market that they expected to not touch their Fed Funds rate until 2021. The other Central Banks also stood pat. Brexit is back on track with the Conservative Party wining a landslide victory in the UK and picked up more than enough seats to finally leave the EU. A phase one trade deal with China was announced but its not signed and details keep emerging on what it really does and does not contain.

The Talking Fed: The FOMC released their Interest Rate Decision and Policy Statement. You can read the official release here.The FOMC also released their Economic Projections. You can read their economic projections here. Here are some key points:

  • They kept their key interest rate in the 1.50% to 1.75% rate which is unchanged from the prior Fed meeting.
  • The vote was 10-0.
  • Says rates are currently “appropriate” to support growth, jobs and inflation, while the statement omitted prior language that said “uncertainties about this outlook remain”.
  • Their dot plot chart derived from their Economic Projections show that their rate projections from 13 out of 17 officials expect no change in their key interest rate through the end of 2020; most see higher rates as likely in 2021, with a further increase expected in 2022.
  • The FOMC said the labor market and household spending were strong, while business investment and exports were weak. The Fed said it will continue to monitor information “including global developments and muted inflation pressures.”
  • The Fed lowered their Unemployment Rate from 3.7% down to 3.5% for 2020 and the longer run Unemployment Rate from 4.2% to 4.1%.
  • GDP forecasts remained unchanged: 2019 2.2%, 2020 2.0%, 2021 1.9% and 2022 1.8%.

Inflation Nation: The November Consumer Price Index (CPI) was inline with estimates as the Core (ex food and energy) YOY reading was 2.3% vs est of 2.3%. The Headline YOY CPI was a tick higher 2.1% vs est of 2.0%.

Retail Sales: November Retail Sales were lighter than expected with a headline MOM reading of 0.2% vs est of 0.4%. However October was revised upward to 0.4%. When you strip out Autos, Retail Sales grew at monthly pace of only 0.1% vs est of 0.4%. October was revised higher to 0.3%.

What to Watch Out For This Week:

 

The above are the major economic reports that will hit the market this week. They each have the ability to affect the pricing of Mortgage Backed Securities and therefore, interest rates for Government and Conventional mortgages.