Homebuilder Confidence Up in November; Builders Optimistic

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Homebuilders' confidence, as indicated by the National Association of Home Builders (NAHB)/Wells Fargo housing market index, rose 4 points to 58 in November – a relief after a drop of the same magnitude in the number in October.

The index reflects an optimistic outlook among builders for the upcoming quarters as demand for new homes increases with the improving job market and growing consumer confidence.

Any reading on this index above 50 indicates good housing conditions. The index has remained above 50 for five consecutive months this year.

Stabilizing mortgage rates this year, improving job market, moderating home prices and rising inventory levels have paved the way for a steady recovery in the housing sector after a slump at the beginning of the year. Housing market momentum is expected to continue in 2015.

Though mortgage rates in 2014 are higher than the average rate in 2013, they are still below historical levels, making housing affordable. According to the Freddie Mac mortgage survey, the 30-year fixed mortgage rate has gone down from 4.43% in January to 4.04% in October.

Moreover, though home prices have been rising in 2014, the rates have moderated since the last year. A report from the S&P/Case-Shiller home price data through August showed a persistent slowdown in price increases this year. The year-over-year reading for the 20-city index showed price increases of 5.6% in August, softer than the 6.7% increase in July.

Further, a slew of data released recently signals steady growth in the housing market. Housing starts rose 6.3% in September from the prior month to an annualized rate of 1.017 million units — topping the 1 million mark for the third time this year. Sales of new single-family homes in the U.S. rose 0.2% in September, rising for three consecutive months. Sale of existing homes in September went up 2.4%, after a modest decline in August.

Homebuilder stocks have gained significantly this month following the string of upbeat housing data. While Lennar Corp. LEN, Toll Brothers, Inc. TOL and Ryland Group, Inc. RYL were up around 6%, KB Home KBH and DR Horton, Inc. DHI increased around 8%. PulteGroup Inc. PHM witnessed more than 10% rise this month.

However, what keeps us concerned is the probability of a hike in short-term interest rates in 2015 as the Fed has ended its six-year long quantitative easing program in October, assuming that the economy will not need any meaningful assistance at current levels.

Though the Fed has reaffirmed that the key interest rate will be kept at the record low level for a ‘considerable time,' investors have started speculating over the timing of the destined rate hike.


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