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Home Builder Optimism at Highest Level Since 1999

By Taff Weinstein at

Home Builder Optimism at Highest Level Since 1999

Home Builder Optimism at Highest Level Since 1999:

Builder confidence in the market for newly-built single-family homes increased five points to a level of 74 in December on the National Association of Home Builders Housing Market Index (HMI) which is the highest reported level since July 1999, over 18 years ago.

“Housing market conditions are improving partially because of new policies aimed at providing regulatory relief to the business community,” said NAHB Chairman Granger MacDonald, a home builder and developer from Kerrville, Texas.

“The HMI measure of home buyer traffic rose eight points, showing that demand for housing is on the rise,” said NAHB Chief Economist Robert Dietz. “With low unemployment rates, favorable demographics and a tight supply of existing home inventory, we can expect continued upward movement of the single-family construction sector next year.”

Derived from a monthly survey that NAHB has been conducting for 30 years, the NAHB Housing Market Index gauges builder perceptions of current single-family home sales and sales expectations for the next six months as “good,” “fair” or “poor.” The survey also asks builders to rate traffic of prospective buyers as “high to very high,” “average” or “low to very low.” Scores for each component are then used to calculate a seasonally adjusted index where any number over 50 indicates that more builders view conditions as good than poor.

All three HMI components registered gains in December. The component measuring buyer traffic jumped eight points to 58, the index gauging current sales conditions rose four points to 81 and the index charting sales expectations in the next six months increased three points to 79.

Looking at the three-month moving averages for regional HMI scores, the Midwest climbed six points to 69, the South rose three points to 72, the West increased two points to 79 and Northeast inched up a single point to 54.
Source: NAHB

What Happened to Rates Last Week?


Mortgage backed securities (FNMA 3.50 MBS) lost -5 basis points (BPS) from last Friday's close which caused fixed mortgage rates to move sideways for the week.

Overview:  We had another week of strong economic data (Retail Sales) and our Federal Reserve raised their key interest rate (they do not control mortgage rates) as well as upgraded their economic projections.  Mortgage backed securities were largely not impacted by the Fed action and had only a very small change for the week.

The Talking Fed:
As widely expected, the FOMC voted to increase their key Fed Fund Rate by 0.25% to a range of 1.25% to 1.50% which is still well below the "neutral" rate (when inflation are rates are equal).

It was a very interesting contrast where the majority of the economic outlook was stronger than expected while their expectations that it would take a "couple of years" for inflation to hit 2%.
The vote was 8-2 with Kashkari and Evans voting against it.  However, BOTH of those Fed members are non-voting members in 2018, so their influence is greatly minimized.

Here are some key take- aways from the Fed:
- median expectations for the Unemployment Rate in 2018 and 2019 is 3.9%
- median expectations for GDP in 2017 and 2018 is 2.5% and in 2019 its 2.1%
- Inflation expectations don't hit 2.0% until 2019
- leaves pace of reduction in MBS and Treasuries as-is.
- Yellen says tax reform would give economy a boost.
- dot plot chart shows 3 rate hikes in 2018

Retail Sales: This was a very strong report.  The Headline November reading showed a MOM gain of 0.8% which is almost three times higher than expectations of 0.3%. Actually its better than that considering that October was revised high from 0.2% to 0.5%. Ex- Autos the data was even better with a 1.0% gain vs est of 0.6%, plus October was revised upward from 0.1% to 0.4%.

What to Watch Out For This Week:

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