Manufacturers Tell Greenspan of Rising Materials Prices
A delegation of NAHB Senior Officers and members of the National Council of the Housing Industry (NCHI) — the Supplier 100 of NAHB, visited Federal Reserve Board Chairman Alan Greenspan on May 17 to bring him up to date on conditions in the nation’s housing industry.
Participants at the closed-door session reported that they expect housing industry performance to remain healthy even as the Fed continues its drive to gradually push up interest rates to a level that has a neutral impact on the economy.
Members of NCHI did, however, voice concern over the rising cost of raw materials, especially steel and petroleum-based resins. Many of the manufacturers of housing industry products said that they will be passing some of those costs onto their customers, a tack similar to what home builders are now doing to keep up with higher construction costs.
Greenspan has consistently reiterated his view that there is no national housing bubble despite the rapidly rising housing prices of the past couple of years, and he said publicly last week that the speculation that exists in some boom markets is unsustainable and will likely simmer down as housing becomes less affordable.
Despite the Federal Reserve’s efforts to drive up interest rates, the decline in affordability in the country’s frothiest housing markets has so far been the result of rising prices rather than higher mortgage interest rates. With inflation remaining low, mortgage interest rates haven’t budged above the 6% level for the past several weeks.
In Freddie Mac's latest weekly survey of mortgage interest rates, the 30-year fixed-rate mortgage averaged 5.71%, down from 5.77% during the previous week and the lowest level since February. Fixed-rate mortgages were averaging 6.3% a year earlier.
“It is remarkable how mortgage rates have remained so low for so long," said Frank Nothaft, Freddie Mac’s chief economist. “But as long as inflation is held in check, there is little or no pressure to push mortgage rates higher. And at the moment, core inflation does indeed seem to be a nonevent.”
NAHB Chief Economist David Seiders and others expect the cost of mortgage financing to move upward in the period ahead.
Representatives from NAHB have met with the Fed chairman over the past 18 years, and Greenspan has been following the industry closely because of its significant contribution to the nation’s economy.
Photos by Herman Farrer