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“Rising Mortgage Rates” Theory Proved Wrong? U.S. Housing Starts Again Beats Wall Street Estimates.

Posted January 8, 2015

“Rising Mortgage Rates” Theory Proved Wrong? U.S. Housing Starts Again Beats Wall Street Estimates.

Housing Starts remain elevated, suggesting that the 2014 housing market will be strong for builders and new construction

Housing Starts remain elevated, suggesting that the 2014 housing market will be strong for builders and new construction

New construction continues to outperform the broader U.S. housing market. Single-Family Housing Starts reached 667,000 units on a seasonally-adjusted, annualized basis in December, the report's second-highest reading since 2008.

It's no wonder U.S. homebuilders have confidence in next year's home sales -- demand for newly-built homes is rising and prices are rising to match. New construction is a seller's market today. Builders control supply and this year's buyers are losing leverage in negotiations.

 Want to buy a new home? You may find better deals in winter as compared to spring.

See today's new home mortgage rates here.

Housing Starts Lag Demand

Each month, the Department of Housing and Urban Development (HUD), in conjunction with the U.S. Department of Commerce, releases its New Residential Construction report. The report is comprised of three parts -- Building Permits, Housing Starts, and Housing Completions.

Data from the December 2013 was unexpectedly strong for the second straight month. Higher mortgage rates were supposed to have slowed year-end housing figures. In time, they might but, for now, the markets remains strong.

For single-family homes, Building Permits and Housing Starts both rose in December as compared to the year prior.

  • Building Permits : +5 percent from July 2013
  • Housing Starts : +8 percent from July 2013

Data was equally strong as compared to a six-month moving average, which can smooth out seasonal factors such as wet or extremely cold weather. Housing Starts beat the six-month moving average by more than 6 percent.

It's no wonder homebuilder confidence is high.

Recently, the National Association of Homebuilders reported homebuilder confidence at a level of 56, which is considered "good". It's one of the highest readings since late-2005. Builders cite rising prices and big traffic as two reasons for a strong outlook.

Home sales over the next 6 months are expected to be strong and inventory is expected to remain tight. It's a good time to be selling new construction but likely not the best to be buying it.

Sales prices of new homes are rising faster than sales prices of home resales. Today's new home sellers have increasing negotiation leverage over buyers in most U.S. markets.

Thankfully for buyers, mortgage rates remain low.

See today's new home mortgage rates here.

Affordable Payments For New Construction Homes

Mortgage rates in the 4s were a factor in last year's surge for new homes. Rates for buyers willing to pay discount points remained steadfastly south of five percent, and a bevy of low- and no-downpayment mortgages helped home buyers who had little cash available for downpayment.

One such program, the Conventional 97 program, is no longer available. The FHFA canceled the program as of mid-December, pushing other low- and no downpayment mortgages to the forefront.

Editor's Note: The Conventional 97 program was reinstated in late-2014 with fewer eligibility requirements for mortgage applicants. The program is also available via Fannie Mae and Freddie Mac.

The USDA Rural Housing Loan, for example, is receiving a surge of demand among today's home buyers. The no-money-down program, which is available in many suburban neighborhoods, offers 100% financing with very low mortgage rates.

USDA loans are often cheaper than comparable Fannie Mae loans, and mortgage insurance rates are less, too. A typical USDA mortgage requires just 40 basis points of mortgage insurance annually versus the 100 basis points or more which typically accompany conventional loans.    

Or, for buyers with less-than-perfect credit, the FHA mortgage is emerging as an excellent alternative. FHA mortgages require a 3.5% downpayment and approval terms are often more flexible than with a Fannie Mae or Freddie Mac loan.

FHA loans are also assumable which means that homes with FHA loans on them can be sold with the existing FHA mortgage rate attached.

Other low-downpayment options include the VA mortgage, which allows for 100% financing for eligible military borrowers; and the FHA Good Neighbor Next Door program which lets buyers buy homes at 50% off with just $100 down.

Want To Buy New Construction? Start Here.

If your plans for 2014 include buying a newly-built home, compare today's live mortgage rates and see for how much home you'll qualify. Mortgage rates are at their lowest levels of the year. However, with home prices climbing, you may want to get ahead of next year's demand.

Compare today's live mortgage rates now. Rate quotes are personalized, free, and there's no obligation to proceed whatsoever.

See today's live mortgage rates here.

The information contained on The Mortgage Reports website is for informational purposes only and is not an advertisement for products offered by Full Beaker. The views and opinions expressed herein are those of the author and do not reflect the policy or position of Full Beaker, its officers, parent, or affiliates.

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2015 Conforming & FHA Loan Limits

Mortgage loan limits for every U.S. county,
as published by Fannie Mae & Freddie Mac, and the FHA.