GIVE ME ANOTHER HOUSING FIX, QUICK!
Alan & Co. is set to raise the federal funds rate at the end of the month to 3.25%, but anybody who once thought that Fed tightening has any effect on the housing market has long since given up on that fairy tale.
Freddie Mac reports today that mortgage rates continue to hover around 14-month lows. The one-year ARM stands at just 4.25%, still within the band it has bounced around in since late 2002; the 30-year FRM is at 5.63%, well below the top of its recent band.
Yesterday the Mortgage Bankers Association told us that its index of mortgage loan application volume was 46.1% higher than this time last year while its purchase index hit a record high this week and its refinancing index is at its highest point in 14 months.
No surprise, then, that the Commerce Department reports via Bloomberg that
U.S. housing starts rose 0.2 percent last month to the fastest rate since February as low mortgage rates and an improved job market kept homebuilders on pace for their best year since 1978. . . .Another bite indeed.
"This is an extremely strong reading," said Ken T. Mayland, president of ClearView Economics LLC in Pepper Pike, Ohio, who predicted a 2 million rate for housing starts. "With the decline in bond yields and mortgage rates, consumers have had another chance to get another bite out of the apple here."
Of course, the US economy is becoming increasingly dependent on biting the same apple over and over and over again. Via Bloomberg:
Residential construction has been a source of strength for the economy this year, growing at an 8.8 percent annual rate in the first quarter, faster than the 3.5 percent for the economy in general. Production of construction supplies grew at a 4.5 percent annual rate in the first quarter, faster than the 3.5 percent rate for all industry, the Fed reported yesterday.In 2005:I the residential construction sector made its highest quarterly contribution to overall GDP since 1978:IV, and in annual terms, 2004 was the most housing-dependent year since 1978. The great difference between 2004 and 1978 is that twenty-five years ago exports and investment were much more important in relative terms than they are in today's domestic-consumer-driven economy. If the housing sector grows any larger in relative terms we'll have to go all the way back to 1955 to find a more housing-dependent US economy.
Construction has accounted for 141,000 of the 898,000 jobs added in the U.S. this year, and more hiring is likely: a survey by Manpower Inc. said U.S. hiring expectations for the third quarter were highest among construction companies, with 43 percent saying they planned to add workers.In 2004, 15.5% of all new jobs were in construction. In 1978, the last time the US was so dependent on housing for its economic growth, just 9.0% of all new jobs were in construction. Or go all the way back to 1955 when construction made up just 11.7% of all new jobs.
Note also that US job growth is becoming more, not less, dependent on construction. So far in 2005 the (SA) figure is up to 15.7%, and over the last three months, the (SA) figure is up to a whopping 19.8%.
So have another big bite of that ARM apple. Your neighbor's job depends on it.