Housing starts will keep a lid on mortgage rates
You can breathe easy, mortgage borrowers. Builders are constructing more new homes, but not at a pace that would force mortgage rates upward. Consider this report on housing starts as a green light to shop for a mortgage loan.
Housing starts in March were at a seasonally adjusted annual rate of 1.215 million, according to the Census Bureau. That pace of construction is a little lower than the consensus estimate of 1.26 million, but it’s close enough to not matter. It’s within the margin of error. So there’s no reason to worry that the economy is unexpectedly cooling down or that it’s heating up too fast. I call it a Goldilocks report.
What could have happened
If housing starts had been far higher — say, a pace of 1.4 million or more — then it might have sparked a small rise in mortgage rates. Under that scenario, investors would have pulled out of mortgage bonds and bought stocks instead. Homebuilders, lumber companies, that kind of thing.
Instead, housing starts came in a little lower than expected. According to the Census, housing starts in March were lower than they were in February. That’s a seasonally adjusted rate, so it takes into account that February is three days shorter than March. It’s still odd, because the weather is warmer in March, so you typically see more housing starts.
But it’s been a weird winter. The average temperature in the United States was 7 degrees above the 20th-century average. Chicago had no snow in February, which boggles the mind. My theory is that builders in cold-weather states moved their schedules up a month, starting construction on houses in February that they had intended to start in March. That would account for an unusually busy February for builders, followed by a less-busy March.
It’s a cool theory, although it ignores the insanely rainy winter in California, which probably delayed construction on some homes there. Nevada and Wyoming had their wettest winters ever.
Housing permits are way up
The news is encouraging when you look at housing permits. In March, permits for new homes were issued at a seasonally adjusted annual rate of 1.26 million units. That’s a 17 percent increase over the number of housing permits issued in March 2016. “That is good news for buyers hoping to find a variety of homes to choose from in their price range,” says Joseph Kirchner, senior economist for Realtor.com.
There’s a shortage of homes for sale, as any home shopper could tell you. This increase in housing permits is good news for future homebuyers who would like supply to get in line with demand. For those who are in homebuying mode, I recommend getting a mortgage preapproval before selecting a house.