U.S. housing starts rose more than expected in December as groundbreaking for single-family homes hit its highest level in more than 6-1/2 years, in a hopeful sign for the sluggish housing market recovery.
Starts increased 4.4 percent to a seasonally adjusted annual pace of 1.09 million units, the Commerce Department said.
November’s starts were revised up to a 1.04 million-unit pace. For all of 2014, groundbreaking increased 8.8 percent to 1.01 million units, the highest since 2007.
Single-family homes starts, the largest part of the market, jumped 7.2 percent to a 728,000-unit pace, the highest level since March 2008. Groundbreaking on single-family projects in the West hit a seven-year high, while starts in the Midwest were the highest since December 2011. Groundbreaking in the volatile multi-family homes segment fell 0.8 percent to a 361,000-unit pace.
Confidence among U.S. home builders held steady in January, giving back very little following a sizable jump toward the end of 2014. A monthly index of builder sentiment from the National Association of Home Builders fell just one point in January to 57 from an upwardly-revised December reading. Anything above 50 is considered positive sentiment, and this marks seven straight months above 50.
“Steady economic growth, rising consumer confidence and a growing labor market will help the housing market continue to move forward in 2015,” said the association’s Chief Economist David Crowe in a release.
Of the index’s three components, current sales conditions remained unchanged at 62. Expectations for future sales dropped four points to 60, and traffic of prospective buyers fell two points to 44. Buyer traffic is the only component that seems unable to break into positive territory. On a three-month moving average, builder confidence in the West rose by four points to 66, in the Midwest gained three points to 57 and in the Northeast was up two points to 47. Confidence among builders in the South dropped two points to 58.
In a move designed to bring more first-time homebuyers into the housing market, the Federal Housing Administration (FHA), the government insurer of home loans, will lower its annual insurance premiums from 1.35 percent to 0.85 percent.
Mortgage bankers praised the decision. “It couldn’t come at a better time,” said David Stevens, CEO of the Mortgage Bankers Association. “February is the beginning of the spring market. I think it will have a definitive impact particularly in the first-time homebuyer market.” For the typical FHA applicant, the reduction in premiums means a savings of about $80 on their monthly payment, according to CoreLogic’s chief economist, Sam Khater.
The FHA had been the only low down payment product available, with a minimum 3.5 percent down, but recently Fannie Mae and Freddie Mac announced a new 3 percent down payment product that would require private mortgage insurance. The product would compete directly with the FHA and could have offered some borrowers a cheaper option if they had a good credit score. But many applicants that would qualify under FHA’s credit and debt-to-income guidelines would not have been approved for the new Fannie and Freddie programs, so this move by FHA will add more purchasers into 2015.
The Realtors’ Pending Home Sales Index is up 4.1 percent from a year ago, the third straight month of annual gains and the largest gain since August of 2013. These contracts are an indicator of closed sales in the next one to two months.
Signed contracts to buy existing homes increased 0.8 percent from a downwardly-revised October reading, according to the National Association of Realtors (NAR), due to favorable mortgage rates and easing home prices.
“The consistent economic growth and steady hiring we’ve seen the second half of this year is giving buyers enough assurance to consider purchasing a home before year’s end,” said Lawrence Yun, NAR’s chief economist in a release. “With rents now rising at a seven-year high, historically low rates and moderating price growth are likely to entice more buyers to enter the market in upcoming months.”
Regionally, pending home sales rose 1.4 percent in the Northeast month-to-month, fell 0.4 percent in the Midwest, rose 1.3 percent in the South and increased 0.4 percent in the West.