BuildingTeam Construction Forecast

Notes from Jim Haughey

Reed Construction Data Chief Economist Jim Haughey discusses how current developments in construction markets and the ecomony will bring opportunities and challenges for designers, contractors, and materials and services providers. His reports will cover near-term building demand, cost and financing changes, and will provide early notice on changes in the detailed two-year construction forecasts elsewhere on this site. Feedback and questions from readers are encouraged.

Monday, August 27, 2007

New Home Sales Up (Temporarily) in July

Aug 27 2007 8:39AM | Permalink | Email this | Comments (1) |
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July’s 2.8% rise in new home sales to an 870,000 annual rate provided a morsel of relief to beleaguered homebuilders. Unfortunately it is not a new trend because these are pre “mortgage crisis” sales. Sales in the next few months are far more likely to dip than rise. Reed Construction Data still believes that the decline in new home sales is essentially over but that there won’t be sustained improvement for several months.

The disruption of the non-prime mortgage market over the last month almost certainty caused the delay or cancellation of some planned purchases with nonprime mortgages and some of this will continue for a few months. Prospective buyers are being hit with higher than expected mortgage rates and the inability of the lender to come up with the needed cash. Ahead, some buyer will delay believing that the ugly news from the mortgage market means further cuts in home prices are coming.

This further delay in the recovery of the housing market will be concentrated in those cities that already had the weakest markets because this is where the share of purchases with non-prime mortgages is the highest.

Every bad news coin has a flip side. Builders targeting buyers who qualify for prime rate, conforming (under $417,000) mortgages get a temporary boost from the turmoil in the financial markets. 30-year and 1-year adjustable mortgage rates dropped almost 20 basis points in the last month. Nervous investors who fled the mortgage backed bond market that finances non-prime mortgages parked their capital in safe Treasury bills which pushed down the borrowing cost for Freddie Mac, Fannie Mae and others that finance the prime mortgage market.

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