Housing Bubble
Low mortgage rates help boost Housing Market Index to highest level in two years
The confidence
of builders in the market for new single-family homes has been boosted
by the lowest mortgage rates in nearly forty years according to the
National Association of Home Builders Housing Market Index (HMI). The
Index, a monthly gauge of
builder sentiment, rose two points from
October's revised reading to 65 this month, its highest level in two
years.
"With long-term mortgage rates slipping below 6 percent, builders are certainly finding buyers who can qualify to purchase homes in most price ranges right now," said Gary Garczynski, NAHB president and a home builder/developer from Woodbridge, Va. "Great house-price performance is also definitely a factor," he said, noting that solid home appreciation rates are accentuating the investment potential of homeownership.
"In markets where demand is outstripping the supply of homes for sale, and where soaring land prices are pushing up builders' costs, there's just no reason to worry about a so-called 'bubble,'" said Garczynski. He noted, however, that the latest NAHB survey did indicate that builders in some areas are reigning in their expectations for sales in the highest price ranges because of large stock-market losses by prospective buyers.
The Housing Market Index (HMI) is a monthly survey of NAHB members designed to take the pulse of the housing industry, especially the single-family industry. The survey asks home builders to rate general economic conditions, current sales of single-family homes and sales expectations for the next six months as "good," "fair" or "poor." They are also asked to rate traffic of prospective buyers as either "high to very high," "average" or "low to very low."
All three of the HMI's component indexes rose this November. The index gauging current single-family home sales rose two points to 71, its strongest reading since November of 2000. The index gauging expected sales in the next six months also rose two points, to 70, while the index gauging traffic of prospective buyers rose one point to 48.
"The Federal Reserve's most recent move to lower short-term interest rates appears to be helping to support consumer sentiment, which showed some recovery in early November," said NAHB Chief Economist David Seiders. "We expect a healthy level of home sales and production to continue through this year and into next, though some softening is likely from the exceptionally strong volume we've seen in recent months."
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