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There are now a number of
indications that housing has
fallen back into a lull since the
federal homebuyer tax credit
expired at the end of April,
as purchase mortgage activity fell for
the following five straight weeks and
construction activity fell sharply in May.
Building permits also plunged for the
second straight month, which suggests that
future construction is likely to slow further.
In further efforts to shore up conditions
in the housing market, the Senate approved
a plan to extend the
federal homebuyer tax
credit; however, the
extension would only
apply to the settlement
date and not the date
a sales agreement has
been reached. The proposal calls for the
closing date to be extended to Sept. 30 from
June 30 in order to qualify for the credit,
although an executed agreement of sale
would still have to be dated before April 30.
While the estimated $140 million cost of
the latest extension would help those who
are struggling to meet the closing deadline
in the typical 60-day timeframe it takes to
close on a home, it will not help provide
any additional stimulus to sales activity.
However, Mortgage lenders and title
companies have been flooded with activity
because buyers are rushing to close before
the June 30 deadline so the extension
would provide a little extra breathing
room to make sure everyone who signed a
contract by April 30 received the tax credit.
Following upward revisions for April,
leading economic indicators in May
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increased again and have not posted a
monthly decline since April 2009, which
suggests that economic growth can be
expected to continue in the coming
months. The leading index increased to
a reading of 109.9 in May, which is a 0.40
point gain from April levels. Declines
in building permits, stocks and vendor
performance were offset by gains in the
index for consumer expectations, money
supply and average work week.
Renewed concerns of economic growth
dragged on builder confidence in June.
After increasing for
two consecutive
years to its highest
levels since July
2007, the NAHB
housing market index
dropped five points
in June to a reading of 17. This was the
largest single-month drop in the housing
market index since August 2006. All three
component indexes reported declines in
June as well.
Total housing starts for the U.S. fell 10
percent from the previous month to a
seasonally-adjusted annual rate of 593,000
units in May. This is the lowest level of
residential construction activity since
December 2009. Single-family starts,
which make up the majority of residential
construction activity, plunged 17 percent
to a seasonally-adjusted annual rate of
468,000 units in May.
Building permit activity also dropped last
month, which suggests that construction
activity will slow even further in the coming
months. Overall permit activity fell 5.9
percent in May to a seasonally-adjusted
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annual rate of 574,000 units. Single-family
permit activity dropped 10 percent in May
to a seasonally-adjusted annual rate of
438,000 units.
National average mortgage rates increased
from the previous week to 4.75 percent in
the latest Primary Mortgage Market Survey
released by Freddie Mac on June 17. Although
rates have recorded slight increases in two
out of the past three weeks, they remain at
record-low levels. Fixed mortgage rates are
still just slightly higher than the all-time low of
4.71 percent set in December 2009.
Jonathan Dienhart is the director of
published research for HWMI. He may be
contacted at jdienhart@ hanleywood.com.
FAST FACTS
- Purchase mortgage activity, construction activity and building fell sharply in May.
- The NAHB Housing Market Index posted its largest single-month drop in June since August 2006, falling to a reading of 17.
- The estimated $140 million extension would allow for closing dates to change from June 30 to Sept. 30.
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