Week of August 3, 2009
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Mortgage Rates Rise Slightly Along With Optimism on Housing

Optimism that the economy may be stabilizing pushed up bond yields last week, and mortgage interest rates rose along with them, according to Frank Nothaft, Freddie Mac's chief economist.

The 30-year fixed-rate mortgage averaged 5.25% for the week ending on July 30, according to Freddie Mac’s Primary Mortgage Market Survey, up slightly from 5.20% during the prior week, but down significantly from 6.52% one year earlier.

The 15-year fixed-rate mortgage averaged 4.69%, up from 4.68% the week before. Five-year Treasury-indexed hybrid adjustable-rate mortgages climbed almost imperceptibly from 4.74% to 4.75% and one-year ARMS increased from 4.77% to 4.80%.

The financial markets last week derived their optimism on conditions in the nation housing market from a number of sources, including the Federal Reserve, which reported weakness in most of its districts, but also signs of improvement, especially in sales of entry-level homes profiting from the availability of the first-time home buyer tax credit. (For a related story in this issue of NBN, click here.)

“Other economic reports confirm that the housing market may indeed be bottoming out,” said Nothaft. "New home sales rose for the third consecutive month in June to an annual pace of 384,000 homes, the most since November 2008, and the number of new houses on the market fell to the lowest amount since February 1999, according to the Department of Commerce,” he said.

“Sales of existing homes also showed a three-month gain to 4.89 million, the most since October 2008,” said Nothaft, “and the share of distressed homes fell to 31% compared to almost half at the beginning of the year, the National Association of Realtors® reported.”

The news media widely reported last week that the housing industry was starting to see some signs of recovery, but analysts said that the upturn so far is tentative, with home builders facing such difficult obstacles as the continuation of rising unemployment and low consumer confidence, more foreclosures and a dearth of credit to build and produce more housing.

News coverage focused on the findings of the Standard & Poor’s/Case-Shiller price index, which showed 10- and 20-city composite prices of single-family homes rising 0.5% from April to May, the first monthly increase since 2006.

However, at an annual rate those indexes declined 16.8% and 17.1%, respectively, according to the May data, which showed the index improving for the fourth consecutive month after a steep decline that commenced in the fall of 2005.

“While many indicators are showing signs of life in the U.S. housing market, we should remember that on a year-over-year basis home prices are still down about 17% on average across all metro areas, so we likely do have a way to go before we see sustained home price appreciation,” said David Blitzer, chairman of the Index Committee at Standard & Poor.

Economists who have been forecasting that the economy would start growing again in the second half of this year received encouraging news from the Commerce Department on July 31 showing that GDP declined at an annual rate of 1% during this year’s second quarter, better than expected, following a 6.4% rate of decline in the first three months of the year.

Forecasters are also expecting unemployment to continue to rise into next year, eventually exceeding 10%, despite the turnaround in growth.

Tax Credit Web Site Looks at Opportunity of a Lifetime

Builders and other industry professionals can help spur home sales by referring prospective first-time home buyers to www.federalhousingtaxcredit.com. The NAHB Web site provides detailed information on the $8,000 federal tax credit for first-time home buyers included in the economic stimulus legislation signed into law by President Obama.

Consumers can use the Web site to find information on the tax credit — including a detailed question and answer section. It also includes information about other housing-related and small business measures in the legislation and a number of home-buying resources for consumers.

Spanish Version Also Available Online

A Spanish version of this increasingly popular Web site is also available to provide detailed information on the tax credit to Spanish-speaking first-time home buyers.

Industry professionals are encouraged to highlight either tax credit Web site when marketing to their potential first-time home buyer market.

Want to Know the Housing Starts Through 2017?

Find out in HousingEconomics.com's Long-Term Forecast.

Subscribe and get downloadable Excel tables that feature the housing starts forecast, gross domestic product (GDP), demographics and more. 

To learn more, visit www.housingeconomics.com.

Plan to Attend Construction Forecast Conference

Plan to attend or watch the 2009 Fall NAHB Construction Forecast Conference & Webcast on Oct. 21 in Washington, D.C. to get the latest facts, insights and analysis of the housing industry.

Panels of nationally recognized experts at the day-long conference will discuss economic trends, government policies, developments in the housing industry and the results from NAHB's recent surveys.

For more information and to register, visit www.nahb.org/cfc.

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