Market Recap: Record Home Builders’ Reports and a Federal Rate Hike

Posted On March 17, 2017

Happy St, Patrick’s Day!  As expected, the Federal Open Market Committee (FOMC) voted to raise interest rates.  Mortgage rates reacted by trending down.  The home builders’ sentiment index increased at a record pace and housing starts also posted gainful numbers.  However, building permits declined. 

The National Association of Home Builders’ (NAHB) sentiment index surged again following two months of declines.  In March, the index hit a record 71 points, the highest reading since June 2005.  Broken down, the six-month sales outlook increased from 73 to 78 and the index of current sales climbed from 71 to 78.  Prospective buyer traffic is up too, from 46 to 54.  Home builders are confident that the Trump administration will rescind regulations impeding the issuance of building permits.  The steady labor market has also buoyed confidence.

The FOMC voted to raise the benchmark interest rate to a range of 0.75 percent to 1.0 percent following their March meeting.  Only one voting member, Neel Kashkari, president of the Federal Reserve Bank of Minneapolis, voted to leave rates unchanged.  The statement did not divulge his reasoning.  Fed Chair Yellen noted the economy had strengthened appropriately and the move was driven by hiring, consumer spending, and inflation hitting target numbers. 

Housing starts are up 3% to a level of 1.288 million, driven by construction on single-family homes, reaching its highest level since the Great Recession.  Building permits, however, dropped 6% in February to a level of 1.21 million, possibly driven by rising mortgage rates.  Despite this month’s decline, permits issued remains at post-recession peaks and are 4.4% higher on a year-over-year basis. 

The Federal rate increase will impact mortgage rates, but rates are still historically low.  Freddie Mac deputy chief economist Len Kiefer expects rates to hold steady for the spring buying season.  Many experts do not expect to see rates exceed 5% this year. 

Sources: Mortgage News Daily, CNNMoney, MarketWatch, The New York Times, Bloomberg