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Goldman Sachs Sees ‘Strong’ Recovery Starting for Housing~ Housing starts in June highest in four years~ Record Low Mortgage Rates Helping To Stir The Housing Market

Contractors build a house at the KB Home Bella Monte community in Dublin, California on March 21, 2012. Goldman Sachs analysts have raised KB Home to buy from neutral and their rating on the homebuilding industry to attractive from neutral. Photographer: David Paul Morris/Bloomberg

Goldman Sachs Sees ‘Strong’ Recovery Starting for Housing



U.S. homebuilders are an attractive investment as the housing market starts a “strong” recovery that may drive a surge in new-home sales, Goldman Sachs Group Inc. (GS) said in a report today. Housing has a “long list of positives,” including rising prices, job growth, supportive government policies and a decline in the so-called shadow inventory of homes, Goldman Sachs analysts Joshua Pollard and Anto Savarirajan wrote in a note to clients. They raised their rating on the homebuilding industry to attractive from neutral.  Public homebuilders, which have been taking market share from closely held companies, reported increasing orders this year as mortgage rates fell to record lows and the supply of existing homes for sale shrank. Construction of single-family houses rose 4.7 percent in June to a 539,000 annual rate, the fastest in two years, the Commerce Department said last week.
“The super cyclical housing market has turned and a strong recovery in new-home sales is ahead,” the Goldman Sachs analysts wrote. “Over the last year a number of risks to the housing market have abated, giving us confidence that rising home prices will drive a 3-7 year up-cycle in the U.S. market.”  Pollard and Savarirajan added MDC Holdings Inc. (MDC) to its conviction buy list, raised KB Home (KBH) to buy from neutral, increased Ryland Group Inc. (RYL) to neutral from sell and lowered NVR Inc. (NVR) to sell from neutral. They maintained buy ratings on Toll Brothers Inc. (TOL) and PulteGroup Inc. (PHM)

Stocks Gain

MDC Holdings jumped 5.7 percent, the most since February, to $33.18 in New York trading. KB Home climbed 3.6 percent to $10.16, while Ryland added 3.5 percent to $26.64.  The 13-member Bloomberg Industries homebuilder index reversed earlier losses and increased 1.1 percent. The measure has rallied 55 percent this year, compared with a 7.4 percent gain in the Standard & Poor’s 500 Index.  The U.S. economy has created enough jobs since the end of the recession in 2009 to fuel new-home sales at an annual rate of 550,000 to 600,000, the analysts said. New houses sold at a pace of 369,000 in May, the highest rate since 2010, the Commerce Department reported last month.
The Goldman Sachs analysts estimated new-home sales would reach 700,000 in 2014.

U.S. Policies

Government policies have improved in the past year by addressing supply instead of demand, the analysts wrote. Recent programs include the bulk sale of foreclosed single-family homes to investors who are converting them to rentals, and the expanded Home Affordable Refinance Program, which allows refinancing of properties worth less than their mortgages.  Investors “have yet to grasp the significant decline in shadow inventory,” as the supply of homes for sale has fallen to six months from 10 months in the past two years, Pollard and Savarirajan wrote. Shadow inventory, or the homes projected to hit the market through foreclosures and short sales, is down 15 percent in Arizona, California, Florida, Nevada and Texas, while growth in building permits indicates a 34 percent increase in demand in those states, they said.  “Investors are quickly swallowing new foreclosure supply, limiting shadow inventory and creating a floor for home prices,” Pollard and Savarirajan wrote. “We expect any further decline in inventory to serve as a platform for price appreciation, further aiding sales.”
To contact the reporter on this story: Prashant Gopal in New York at pgopal2@bloomberg.net
To contact the editor responsible for this story: Kara Wetzel at kwetzel@bloomberg.net

Housing starts in June highest in four years

By Paul Davidson, USA TODAY

Housing starts jumped 6.9% in June to a 3 ½-year high, underscoring the residential real estate's slow recovery as a bright spot in a sputtering economy.Construction of homes and apartments rose to a seasonally adjusted annual rate of 760,000 in June, the Commerce Department said Wednesday. That exceeded analysts' estimates and was the highest level since October 2008. Single-family home starts increased 4.7% to 539,000, highest since March 2010, though activity that year was inflated by a federal tax credit for home buyers. Building-permit applications, a barometer of future construction, fell 3.7% to a seasonally adjusted pace of 755,000, but the decline was driven by a 10.9% drop in multifamily permits, which can be volatile after hitting all-time lows in the recession, single-family starts began to pick up the second half of last year and kicked into higher gear the past six months. Multifamily construction began to turn up about 18 months ago as Americans who lost their houses to foreclosure, among others, turned to renting.
"We're finally starting to get some traction and move up in a credible way," said Robert Denk, senior economist for the National Association of Homebuilders. Housing starts rose 36.9% in the West, 22.2% in the Northeast and 4.2% in the South, while falling 7.3% in the Midwest.


Yet the housing market is still far from healthy. IHS Global Insight expects about 765,000 homes to be built this year, up from 612,000 in 2011, but that's about half the 1.5 million annual starts that would constitute a normal market, said IHS economist Patrick Newport. He and Denk said it will take three to four years for construction activity to return to normal. Credit conditions remain tight and nearly a quarter of homeowners owe more on their mortgages than their homes are worth, keeping them from moving to new units. And foreclosures continue to dump an outsized supply of homes on the market. But despite a slowdown in payroll growth the past three months, employers have added nearly 4 million jobs in the past two years, prompting young adults who had moved in with parents or friends to rent apartments or buy homes, Newport said. At the same time, he said, inventories of about 144,000 new homes are near record lows and less than half the normal supply. Meanwhile, home prices have stabilized recently, giving some Americans the confidence to trade up to new homes, Denk says. "There's a lot of pent-up demand," he says, adding that a weakening recovery likely would slow but not derail the construction rebound. After hampering the economy the past few years, Newport expects the housing market to add about a quarter of a point to expected economic growth of 2% this year. Ed Kopal, owner of Kopal Building and Design in Tyler, Tex., plans to build 12 to 14 homes this year, up from five last year as his revenue increases sevenfold to about $7 million. For the first time in several years, he's building homes worth at least $1 million as well as a community of 32 houses that don't have buyers yet. Buyers, he says, want to take advantage of low-interest rates. "They feel like interest rates will go up next year," he says, and want to act before this fall's presidential election potentially alters the economic landscape.
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Record Low Mortgage Rates Helping
To Stir The Housing Market



In Freddie Mac's results of its Primary Mortgage Market Survey®, the average 30-year and 15-year fixed-rate mortgage hitting new all-time record lows along with the 5-year ARM. The average 30-year fixed has been below 4.00 percent all but one week in 2012. The average 15-year fixed-rate mortgage has been below 3.00 percent for 8 consecutive weeks. Freddie Mac's Chief Economist highlights how these record low mortgage rates are fueling housing demand in its July U.S. Economic and Housing Market Outlook.



  • 30-year fixed-rate mortgage (FRM) averaged 3.53 percent with an average 0.7 point for the week ending July 19, 2012, down from last week when it averaged 3.56 percent. Last year at this time, the 30-year FRM averaged 4.52 percent. 


  • 15-year FRM this week averaged 2.83 percent with an average 0.6 point, down from last week when it averaged 2.86 percent. A year ago at this time, the 15-year FRM averaged 3.66 percent. 


  • 5-year Treasury-indexed hybrid adjustable-rate mortgage (ARM) averaged 2.69 percent this week, with an average 0.6 point, down from last week when it averaged 2.74 percent. A year ago, the 5-year ARM averaged 3.27 percent.


  • 1-year Treasury-indexed ARM averaged 2.69 percent this week with an average 0.4 point, the same as last week. At this time last year, the 1-year ARM averaged 2.97 percent.   According to to Frank Nothaft, vice president and chief economist, Freddie Mac:

  • "With little signs of inflation and the Federal Reserve's "Operation Twist" keeping U.S. Treasury bond yields in check, fixed mortgage rates are remaining low and helping to stir the housing market. For instance, the 12-month growth rate in the core Consumer Price Index has been in a narrow 2.1 to 2.3 percent band over the past nine months ending in June. Meanwhile, new construction on one-family homes rose for the fourth consecutive month in June to its strongest pace since April 2010 with builders restocking their lean inventories of new homes.  In fact, homebuilder confidence for the next six months rose for the third month in a row in July to its highest reading since March 2007."

    Published: July 20, 2012

    Mortgage rates drop again, Freddie Mac says; 30-year at 3.53%


    July 19, 2012, 7:50 a.m
    Housing tracts in Aliso Viejo. (Marc Martin / Los Angeles Times )

    The average rate on a 30-year fixed mortgage hit another new low this week, dropping to 3.53% from 3.56% last week, according to Freddie Mac's survey of what lenders are offering to well-qualified borrowers. With the Federal Reserve aggressively pushing rates down and few signs of inflation on the horizon, it was 12th time in 13 weeks that a new record was set, Freddie Mac economist Frank Nothaft said in the report Thursday morning. Freddie Mac said the 15-year fixed loan, which has been a popular part of the recent boom in refinancings, averaged 2.83%, down from 2.86% and also a new record. The typical start rate on a five-year hybrid loan, which has a fixed rate until it turns adjustable in the sixth year, was at a record low level as well: 2.69%, down from 2.74%. Borrowers would have paid 0.7% of the loan amount in upfront lender fees to obtain the 30-year fixed loan and 0.6% for the 15-year fixed and five-year hybrid, Freddie Mac said. Freddie Mac asks lenders each week about the terms they are offering to solid borrowers for loans of up to $417,000. Industry pros say well-qualified borrowers can often do slightly better by shopping around, and it’s possible to "buy down" rates by paying additional discount points to lenders. The survey excludes additional third-party closing costs such as appraisals and title insurance.
    ALSO:
    San Francisco Bay housing market improves
    Housing starts up 6.9% to highest level in four years
    Mixed report from Fed shows moderate economic growth



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