The Real on Real Estate October 2016
U.S. Homebuilder Sentiment Rises in September as Sales Improve
Confidence among U.S. homebuilders has surged to the highest level in nearly a year, reflecting a brighter outlook for sales now and into 2017.
The National Association of Home Builders/Wells Fargo builder sentiment index climbed six points this month to 65 following a downwardly revised reading of 59 in August. Readings above 50 indicate more builders view sales conditions as good rather than poor. The index has been mostly at 58 since rising to 61 in January. The last time it reached 65 was October last year.
The latest index beat analysts' expectations, which called for a reading of 60, according to FactSet.
Builders' view of current sales and a gauge of traffic by prospective buyers rose. Their outlook for sales over the next six months also increased.
A strengthening job market and mortgage rates hovering near all-time lows have helped fuel demand for homeownership, pushing up sales of new and previously occupied homes. That, in turn, has been good news for homebuilders.
New home sales accelerated 12.4 percent in July to a seasonally adjusted rate of 654,000 annual units, the strongest level since October 2007. Sales in July roughly matched the long-standing pace of 650,000 new homes selling each year.
A measure of current sales conditions for single-family homes jumped six points to 71, while builders' view of sales over the next six months increased five points to 71. A gauge of traffic by prospective buyers rose four points to 48.
Though new homes represent only a fraction of the housing market, they have an outsized impact on the economy. Each home built creates an average of three jobs for a year and generates about $90,000 in tax revenue, according to NAHB data.
Americans Take on More Mortgage Debt as Housing Recovers
More Americans are buying houses and taking on mortgage debt at a time when higher home prices are also boosting their ownership stakes. The trends, revealed in a Federal Reserve report, reflect the healing of the U.S. housing market nearly a decade after the real estate bubble burst.
The Fed's quarterly report on household wealth showed that Americans' net worth climbed 1.2 percent during the April-June quarter, to $89.1 trillion. Stock and mutual fund portfolios increased 2.3 percent to $21.2 trillion. Housing wealth rose 1.9 percent to $25.6 trillion. The value of checking and savings accounts, as well as pension entitlements, also climbed.
Household wealth, or net worth, reflects the value of homes, stocks, and other assets minus mortgages, credit card debt, and other borrowing. The Fed's figures aren't adjusted for population growth or inflation.
Mortgage debt rose 2.5 percent in the second quarter at a seasonally adjusted annual rate, the biggest quarterly gain in more than eight years. The increase appeared to reflect rising home sales, which reached a nine-year high in June before slipping the following month. Higher sales mean that more people are taking on mortgages.
Still, the increase in mortgage debt remains tame by historical standards. Mortgage debt jumped at double-digit rates in 2004 and 2005, toward the end of last decade's housing bubble. Americans were cashing out the equity in their homes while refinancing their mortgages and using the proceeds to support greater spending.
Home prices began to rebound in 2012, which has increased housing wealth. Ownership equity now equals 57.1 percent of the value of Americans' homes, the highest level since 2006. That figure had plunged as low as 36 percent during the Great Recession, which officially began in December 2007 and ended in June 2009.
The overall increase in household wealth documented by the Fed's report has likely been a boost of confidence. When Americans feel wealthier, they are likely to spend more, thereby providing a lift to the economy.
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