Home Builders Remain Confident


What’s the one thing that is keeping the housing market from growing even faster than it has been? Inventory.  It has been reported over and over that the number of available (quality) homes that buyers want are flying off of the shelves.

How do increase inventory?  You build it.  And that is where Home Builders come in.

U.S. homebuilders are feeling positive about the current housing market, and their level of confidence hasn’t moved in four months. A monthly index of sentiment by the National Association of Home Builders (NAHB) registered 58 yet again in May. Fifty is the line between positive and negative sentiment. The index stood at 54 one year ago and hit a recent high of 65 last October.

“Builder confidence has held steady at 58 for four straight months, which indicates that the single-family housing sector remains in positive territory,” said NAHB Chairman Ed Brady, a homebuilder and developer from Bloomington, Illinois. “However, builders are facing an increasing number of regulations and lot supply constraints.”

Of the three index components, both current sales conditions and buyer traffic were unchanged at 63 and 44, respectively. The index measuring sales expectations over the next six months rose three points to 65.

“The fact that future sales expectations rose slightly this month shows that builders are confident that the market will continue to strengthen,” said NAHB Chief Economist Robert Dietz. “Job creation, low mortgage interest rates and pent-up demand will also spur growth in the single-family housing sector moving forward.”

What Happened to Rates Last Week?


Mortgage backed securities (FNMA 3.00 MBS) lost -4 basis points (BPS) from last Friday’s close which caused fixed mortgage rates to move sideways from the prior week.

We had a very light week for economic data with just a few reports that had the ability to move the bond market.  With MBS just moving -4BPS for the entire week, its clear that last week’s economic data did nothing to help rates.

The Consumer was in the spotlight and looked very good.

Retail Sales: The top of the pyramid – everything flows down from the top.  If Retails Sales are higher then you need to order more goods, they need to be produced, people need to be hired to produce and sell them…yada, yada, yada.  So, it was great news that the April Retail Sales data surprised to the upside with a very strong MOM (month over month) reading of 1.3% vs expectations of 0.8% and a big reversal from March’s -0.3% rate.  Ex-Autos, Retail Sales jumped 0.8% which was almost double the market expectations of 0.5%.

Consumer Sentiment: Surprised to the upside but makes sense given the strong Retail Sales data.  The preliminary May reading hit 95.8 vs estimates of 91.

But it wasn’t just consumers that were more upbeat….Business also improved their outlook as the April NFIB Small Business Optimism Index was better than expected (93.6 vs est of 93.2) and ended a run of declines that hit a 2 year low in March.  5 out of the 10 components increased, 4 were unchanged and 1 decreased.  Looks like they are continuing to struggle with a tight labor pool as the biggest jump was in the job openings hard to fill category.

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. 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.

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Taff Weinstein
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