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What We're Reading: The Good Friday edition
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Homebuilders maintain confidence despite market odds

Housing starts fuel ongoing optimism

construction of new home

Although housing starts posted positive results Friday, the numbers fell below market expectations, with single-family starts remaining mostly stagnant and multifamily activity fueling July growth.

Particularly these days, with financing quite tight, homebuilders are creating homes that are going to sell. And with limited credit availability for potential buyers, single-family starts have stayed relatively stable for the last six months, explained Nationwide Insurance chief economist David Berson.

"They were up higher than a year or two ago, but single-family starts seem to be stagnant. It’s the multifamily starts that are driving the ups and downs of the markets seen over the last six months," Berson said.

Homebuilding activity levels depend greatly on employment growth.

Even though mortgage rates are rising, homebuilders and buyers are hopeful this will be offset by a stronger job market — more homes will sell with a better employment status because it leads to both builder and homeowner confidence, according to Nationwide's chief economist.

Multifamily also will continue to trend upward given the fact that underwriting standards are hindering buyers from being able to afford a mortgage, Berson suggested.

Nonetheless, when putting together the components of existing and new home sales, the numbers reflect a continued market uptick, meaning homebuilders are confident in the future of the housing market.

Sterne Agee analyst Jay McCanless explained that even builders who cannot obtain financing are fired up about housing.

"We believe financing availability for small builder cohort is spotty to non-existent, but in spite of that headwind, this group is resolutely optimistic about current conditions and business conditions in spring 2014," McCanless stated.

Additionally as applications for purchase mortgages continues to rise, it’s a positive sign for housing.

The unadjusted purchase application index has increased year-over-year in every week of 2013 while the seasonally adjusted index has remained more volatile and experienced some negative periods this year, McCanless pointed out.

"We believe the unadjusted data series is the one to watch since investors evaluate homebuilders on a year-over-year basis rather than on a seasonally adjusted basis," McCanless explained.

Overall, amid such market optimism, homebuilders continue to initiate projects on the expectation that demand for new homes will remain strong, explained Sterne Agee chief economist Lindsey Piegza.

"Although keep in mind, while starts have made considerable progress from their lows, upward momentum has waned in recent months," she warned.

She concluded, "Perhaps there is at least some concern of rising borrowing costs curtailing future demand or perhaps builders are hoping to simply keep supply limited in an attempt to further boost prices."

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