FHA — New Home Builders Pessimistic

by Peter G. Miller
June 19th, 2007

If you’re thinking of buying a new home this year you may have fewer choices.

It’s not something you did, but rather a growing uneasiness in the new home marketplace, A June survey of builders known as the “National Association of Home Builders (NAHB)/Wells Fargo Housing Market Index (HMI)” shows a reading of 28, the lowest point since February 1991.

You remember February 1991, right? Allow to me refresh your memory. Sixteen years ago interest rates were at 9.49 percent. They have never been as high since that date (and let us hope that mortgage interest rates do not return to such levels, or the far-higher levels seen before 1991).

“It’s clear that the crisis in the subprime sector has prompted tighter lending standards in much of the mortgage market, and interest rates on prime-quality home mortgages have moved up considerably during the past month along with long-term Treasury rates,” added NAHB Chief Economist David Seiders. “Home sales most likely will erode somewhat further in the months ahead and improvements in housing starts probably will not be recorded until early next year. As a result, we expect housing to exert a drag on economic growth during the balance of 2007.”

But if the problem is with the subprime market, why would loans to borrowers with better credit be impacted? Don’t such borrowers still have better credit?

Perhaps the problem is different. Perhaps the problem is that rates are as high as they have been during the current year, 6.74 percent.

Such rates are low by historic standards, but they are higher than the rates seen since June 2003. That’s when you could get a fixed-rate mortgage for 5.21 percent plus .5 points.

Given that rates are likely to rise still further, look for more gloomy builder reports and fewer construction permits in the months ahead.

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