August in New England is a transitional month. There is the biggest temperature drop between August and September than any other two-month combination in the entire year. The days are modestly warm running around 75F, with brisk and cool evenings around 45F. The evenings are essentially cold, giving residents environmental signs that the seasons are changing and winter will soon be upon us. With the anticipation of a new school year and the sounds of little feet walking down neighborhood sidewalks, America’s attention is moving away from the buying and selling of homes and on to other things – school, Halloween, Thanksgiving, Christmas/Hanukah and Easter, each marking the personal traditions that American families celebrate. We like celebrating these holidays without disruption and, for the most part, moving is not an activity we like to do during this time. The market is turning a corner from its peak buying and selling months to the gradual declining months of fall and winter. These are the months that we should be saving for in order to prepare for another spring launch of housing activities. This is at the heart of strategic management of our businesses as we manage our expenses, cash flow and employee head count. We are cyclical in nature, and economies are built around these cycles. Market fluctuations reflect these cycles as builders forecast demand and vendors respond with inventory of sheet rock, brick, nails, shingles and other supporting goods that underlie our housing markets. Over 15 percent of the American GDP is connected in some way or another with the housing industry. It is important to support these economic cycles with sound economic policy that enables the transportation of goods, and sound banking fundamentals that ensure the free flow of capital and minimize the risk of lenders, but enables the eligibility of borrowers to get approved and supports home ownership efforts. This is why it is important to track builder confidence metrics, investments in real estate technology and mortgage rates.
Builder Confidence Housing starts are beginning to dip (from June to July approximately 1.1 percent), but were up 14.2 percent on a year-over-year basis, continuing the steadily upward trend. In raw numbers this is a 614,000 housing start rate for July as opposed to June’s rate of 754,000, which are the latest numbers from the Census Bureau. Single family housing starts went down from 502,000, but this figure is still a 17 percent increase from July 2012, and a 42 percent improvement from the market bottom in 2009 of 353,000. July saw the most single-family construction permits filed by builders (513,000) since August 2008 according to the National Association of Home Builders.
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Calculated Risk. Despite builder recovery trends, we have a long way to go from traditional operating levels or, more recently, since the collapse of the market. The trend clearly is rising on an annual basis since September 2011 and is now 56 percent above the trough of around 478,000 in April 2009.
Investments in Real Estate Technology Trulia Inc., online real estate search and marketing company and competitor with February’s Niche Report interview feature, Zillow Inc., filed a public offering to raise $75 million. This is on the heels of Zillow’s IPO a year ago, which raised $75.7 million and today has a market capitalization rate of $1.09 billion. This is noteworthy, as it reflects a growth opportunity in housing real estate information and trends. Trulia’s business model, like Zillow’s, revolves around subscriptions with individual real estate agents. A strong market affirmation of the company, by way of stock purchases, reflects a strong indicator of the housing market itself, as well as the stability (and growth) in the number of real estate agents and the market as a whole.
Mortgage Rates Are Rising Those of us in the housing markets have been saying over the last three years mortgage rates are due to rise. Every time it is predicted for rates to rise, the Feds lower rates and interest rates get lower. For those of us in the mortgage industry it has been baffling, but we are beginning to see the signs of rate growth, which for the next year will help real estate agents push borrowers off the sidelines to purchase or sell their homes while they can. Rate growth is a tricky business; if rates edge up too quickly it will stifle the recovery of the housing market; too slowly, it could promote inflation and the cost of goods to increase prematurely. In the weeks leading up to the writing of this article, the 10-year T-note has run up from 1.45 percent to 1.85 percent, taking many mortgages from below 3.5 percent to above 3.75 percent. Mortgage rates are likely to move swiftly but not necessarily ‘fast’. It is more realistic that given the elections, rates will remain ‘flat’, and we are looking at sub-4 percent rates through 2013.
