Positive Signs Emerge for Housing Market, Despite Looming Higher Rates

Average mortgage rates are creeping higher, but two indicators emerged Thursday pointing to a positive outlook for the U.S. housing market in the months to come.
One of them came from optimistic home builders, who said their forward-looking index in July hit a high of 60, a figure not seen since November 2005.

The index from the National Association of Home Builders and Wells Fargo signals more builders are positive than negative for every point over 50. The June reading was revised upward one point to 60 as well. The last time the index reached this level was in November 2005.
“This month’s reading is in line with recent data showing stronger sales in both the new and existing home markets as well as continued job growth,” said NAHB Chief Economist David Crowe. “However, builders still face a number of challenges, including shortages of lots and labor.”
Meanwhile, consumers are projected to increase their spending on home improvement projects over the next few months.
Home Improvement Spending Growth
A separate indicator shows that annual spending growth for home improvements will accelerate to 4.0 percent by the first quarter of 2016, according to the Remodeling Futures Program at the Joint Center for Housing Studies of Harvard University. The center’s Leading Indicator of Remodeling Activity (LIRA) estimates national homeowner spending on improvements for the current quarter and subsequent three quarters. Apparently, Home Automation is a popular home improvement.
“A major driver of the anticipated growth in remodeling spending is the recent pick up in home sales activity,” says Chris Herbert, Managing Director of the Joint Center. “Recent homebuyers typically spend about a third more on home improvements than non-movers, even after controlling for any age or income differences, so increasing sales this year should translate to stronger improvement spending gains next year.”
These positive indicators come as the housing market faces looming pressure from the lending side. Freddie Mac reported Thursday that the 30-year fixed rate mortgage averaged 4.09 percent, with an average 0.6 point, for the week ending July 16, 2015. That’s up from last week when it averaged 4.04 percent. A year ago at this time, the 30-year FRM averaged 4.13 percent.
For most of 2015, mortgage rates hovered below 4 percent.
Fed Poised to Raise Benchmark Rate
But the Federal Reserve policy makers are expected to soon raise short-term borrowing rates, which have been at “near zero” since the height of the financial
Federal Reserve Chairwoman Janet Yellen spoke to the Senate Banking Committee on Thursday, relaying that the U.S. labor market had recovered close to a more normal level, and that’s reason enough for the central bank to likely raise the federal funds rate later this year. The inter-bank short-term rate is a benchmark for a range of consumer financial products, including mortgages, auto loans and personal loans.
Yellen reiterated earlier comments that the Fed remains on the path to raising rates this year — as long as the economy and employment continues to improve as expected.

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