Businessweek Archives

Despite Rising Rates, Housing Shows Surprising Strength


Economic Trends

DESPITE RISING RATES, HOUSING SHOWS SURPRISING STRENGTH

With mortgage rates up by as much as 70 basis points since mid-September, economic forecasters have been bracing themselves for signs of renewed weakness in the bellwether housing sector. Instead, it appears that the market for new single-family homes may actually be strengthening.

For one thing, the National Association of Home Builders reports a significant pickup in optimism in early October. Its monthly survey indicates that 32% of builders felt that current sales conditions were good, the highest level since February, 1989. Similarly, homebuilders' sales expectations for the coming six months and their reports regarding traffic of prospective buyers through model homes were both the strongest in three years.

The latest sales numbers help to explain this exuberance. According to the Commerce Dept., instead of declining by 6.1% as originally reported, sales of new single-family homes in August actually rose for the fourth straight month. Although sales dipped by 1% in September, that initial estimate, like others this year, will almost certainly be revised upward.

Meanwhile, single-family starts have been surprisingly strong, hitting a 1.07 million rate in September, 24% higher than their year-earlier level. And the Mortgage Bankers Assn. reports that its index of applications for mortgages to finance home purchases (which includes new and existing homes) appears to have turned up sharply in mid-October, after trending down in August and September from its recent peak.

If housing remains resilient, it could help lift the economy out of the doldrums. Economist Brian M. Jones of Salomon Brothers Inc. notes that the rise in spending on single-family dwellings over the 12 months ended in June "alone boosted real GDP by almost two percentage points." And that doesn't include the effect on growth of housing-related sales such as furniture. Indeed, real consumer spending on furnishings and appliances exploded at a 17.2% annual rate last quarter.

Why has the turnaround in mortgage rates apparently failed thus far to short-circuit the pickup in housing? Economist Michael Carliner of the nahb notes that housing demand often strengthens as rates turn up in the wake of recessions because people feel that they have already touched their cyclical low. But he also warns that any such positive reaction would almost certainly be dissipated if rates moved significantly higher.GENE KORETZ


Tim Cook's Reboot
LIMITED-TIME OFFER SUBSCRIBE NOW
 
blog comments powered by Disqus