Author Archive: John Sauro

1.99% -15 Yr Fixed Rate – APR 2.33%

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John Sauro

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The Annual Percentage Rate is based on a single family owner occupied conforming conventional home loan, no cash out, with a maximum loan amount of $510,400.00, a 1.99% interest rate, a payment of $3282.12 1.50 points, a $3026.67  discount fee, a 15 day rate lock, Fixed Rate for 15 Years, a 80% Loan to Value and a minimum credit score of 740. The annual percentage rate (APR) will vary depending upon the actual down payment percentages, points and fees for your transaction. The rates may change or not be available at commitment or closing or may be subject to product restrictions. Rates are as of July 20, 2020.  Rates are subject to change without notice. 178 Trinity Pass, Pound Rid NY 10576. Licensed Registered Mortgage Broker, NYS Banking Dept., Loans Arranged Through Third Party Providers. Mortgage Broker CT Banking Dept., MORTGAGE BROKER ONLY, NOT A MORTGAGE LENDER OR MORTGAGE CORRESPONDENT LENDER. NMLS # 1375 & 42481 Registered Mortgage Broker, NYS Banking Department. Loans Arranged Through Third Party Providers. NMLS# 1375

Fake News and Mortgage Rates

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March 26, 2020  – (6 minute read)

For years the media has been misinforming the public on mortgage rates. They continually state that the rates are controlled by the Federal Reserve.  And they continue to beat the drum of FAKE NEWS as I watched this mornings business news shows like CNBC.  Read on and learn how this market really works and its effect on mortgage interest rates.

Mortgage Crisis & Fed Unintended Consequences  

The Coronavirus Meltdown

The current Coronavirus crisis is having a critical impact on the Mortgage Industry, which could potentially make the 2008 financial crisis pale in comparison. The pressing issue centers around capital that’s required by Mortgage Lenders to be able to function and meet covenants that are required for them to continue to lend.

Here’s How the Mortgage Market Works

Let’s begin with the mortgage process. A borrower goes to a Mortgage Originator to obtain a mortgage. Once closed, the loan is handled by a Servicer, which may or may not be the same company that originated the loan. The borrower submits payments to the Servicer, however, the Servicer does not own the loan, they are simply maintaining the loan. This means collecting payments and forwarding them to the investor, paying taxes and insurance, answering questions, etc. While they maintain or “service” the loan, the asset itself is sold to an aggregator or directly to a government agency like Fannie Mae (FNMA), Freddie Mac (FHLMC), or Ginnie Mae (GNMA). The loan then gets placed inside a large bundle, which is put in the hands of an Investment Banker. That Investment Banker converts those loans into a Mortgage Backed Security (MBS) that can be sold to the public. This shows up in different investments like Mutual Funds, Insurance Plans, and Retirement Accounts.

The Servicer’s role is very critical. In order to obtain the right to service loans, the Servicer will typically pay 1% of the loan amount up front. The Servicer then receives a monthly payment or “strip” equal to about 30 basis points (bp) per year. Because they paid about 1% to obtain the servicing rights and receive roughly 30bp in annual income, the breakeven period is approximately 3 years. The longer that loan remains on the books, the more money that Servicer makes. In many cases, the Servicer might want to use leverage to increase their level of income. Therefore, they may often finance half of the cost of acquiring the loan and pay the rest in cash.

Servicing runoff, or even the anticipation of it, can adversely impact the market valuation of a servicing portfolio.

Servicer Dilemma

As you can imagine, when interest rates drop dramatically, there is an increased incentive for many people to refinance their loans more rapidly. This causes the loans that a Servicer had on their books to pay off sooner…often before that 3-year breakeven period. This servicing runoff creates losses for that Mortgage Lender who is servicing the loan. The more loans in a Mortgage Lender’s portfolio, the greater the loss. Servicing runoff, or even the anticipation of it, can adversely impact the market valuation of a servicing portfolio. But at the same time, Lenders typically experience an increase in new loan activity because of the decline in interest rates. This gives them additional income to help overcome the losses in their servicing portfolio.

But the Coronavirus has caused a virtual shutdown of the US economy, which has created an unprecedented amount of job losses. This adds a new risk to the servicer because borrowers may have difficulty paying their mortgage in a timely manner. And although the Servicer does not own the asset, they have the responsibility to make the payment to the investor, even if they have not yet received it from the borrower. Under normal circumstances, the Servicer has plenty of cushion to account for this. But an extreme level of delinquency puts the Servicer in an unmanageable position.

I’m From the Government and I’m Here to Help

In the Government’s effort to help those who have lost their jobs because of the Coronavirus shutdown, they have granted forbearance of mortgage payments for affected individuals. This presents an enormous obstacle for Servicers who are obligated to forward the mortgage payment to the investor, even though they have not yet received it. Fortunately, there is a new facility set up to help Mortgage Servicers bridge the gap to the investor. However, it is unclear as to how long it will take for Servicers to access this facility.

But what has not been yet contemplated is the fact that a borrower who does not make their very first mortgage payment causes that loan to be ineligible to be sold to an investor. This means that the Servicer must hold onto the asset itself, which ties up their available credit. And with so many new loans being originated of late, the amount of transactions that will not qualify for sale is significant. This restricts the Lender’s ability to clear their pipeline and get reimbursed with cash so they can now fund new transactions.

The Fed’s desire to bring mortgage rates down isn’t just damaging servicing portfolios because of prepayments, it’s also wreaking chaos in Lenders’ ability to hedge their risk.

Mark to Market

This week, due to accelerated prepayments and the uncertainty of repayment, the value of servicing was slashed in half from 1% to 0.5%. This drastic decrease in value prompted margin calls for the many Servicers who financed their acquisition of servicing. Additionally, the decreased value of a Lender’s servicing portfolio reduces the Lender’s overall net worth. Since the amount a Lender can lend is based on a multiple of their net worth, the decrease in value of their servicing portfolio asset, along with the cash paid for margin calls, reduces their capacity to lend.

Unintended Consequences

The Fed’s desire to bring mortgage rates down isn’t just damaging servicing portfolios because of prepayments, it’s also wreaking chaos in Lenders’ ability to hedge their risk. Let’s look at what happens when a borrower locks in their mortgage rate with a Mortgage Lender. Mortgage rates are based on the trading of Mortgage Backed Securities (MBS). As Mortgage Backed Securities rise in price, interest rates improve and move lower. A locked rate on a mortgage is nothing more than a Lender promising to hold an interest rate, for a period of time, or until the transaction closes. The Lender is at risk for any MBS price changes in the marketplace between the time they agreed to grant the lock and the time that the loan closes.

If rates were to rise because MBS prices declined, the Lender would be obligated to buy down the borrower’s mortgage rate to the level they were promised. And since the Lender doesn’t want to be in a position of gambling, they hedge their locked loans by shorting Mortgage Backed Securities. Therefore, should MBS drop in price, causing rates to rise, the Lender’s cost to buy down the borrower’s rate is offset by the Lender’s gains of their short positions in MBS.

Now think about what happens when MBS prices rise or improve, causing mortgage rates to decline. On paper, the Lender should be able to close the mortgage loan at a better price than promised to the borrower, giving the Lender additional profits. However, the Lender’s losses on their short position negate any additional profits from the improvement in MBS pricing. This hedging system works well to deliver the borrower what was promised, while removing market risk from the Lender.

But in an effort to reduce mortgage rates, the Fed has been purchasing an incredible amount of Mortgage Backed Securities, causing their price to rise dramatically and swiftly. This, in turn, causes the Lenders’ hedged short positions of MBS to show huge losses. These losses appear to be offset, on paper, by the potential market gains on the loans that the lender hopes to close in the future. But the Broker Dealer will not wait on the possibility of future loans closing and demands an immediate margin call. The recent amount that these Lenders are paying in margin calls is staggering. They run in the tens of millions of dollars. All this on top of the aforementioned stresses that Lenders are having to endure. So, while the Fed believes they are stimulating lending, their actions are resulting in the exact opposite. The market for Government Loans, Jumbo Loans, and loans that don’t fit ideal parameters, have all but dried up. And many Lenders have no choice but to slow their intake of transactions by throttling mortgage rates higher and by reducing the term that they are willing to guarantee a rate lock.

Furthering the Fed’s unintended consequences was the announcement to cut interest rates on the Fed Funds Rate by 1% to virtually zero. Because the Fed’s communication failed to educate the general public that the Fed Funds Rate is very different than mortgage rates, it prompted borrowers in process to break their locks and try to jump ship to a lower rate. This dramatically increased hedging losses from loans that didn’t end up closing.

It’s been said that the Stock market will do the most damage, to the most people, at the worst time.

Even Stephen King Could Not Have Scripted This

It’s been said that the Stock market will do the most damage, to the most people, at the worst time. And the current mortgage market is experiencing the most perfect storm. Just when volume levels were at the highest in history, servicing runoff at its peak, and pipelines hedged more than ever, the Coronavirus arrived.

Lenders need to clear their pipelines, but social distancing is making it more difficult for transactions to be processed. And those loans that are about to close require that employment be verified. As you can imagine, with millions of individuals losing their jobs, those mortgages are unable to fund, leaving lenders with more hedging losses and no income to offset it.

What Needs to Be Done Now

Fortunately, there are many smart people in the Mortgage Industry who are doing everything they can to navigate through these perilous times. But the Fed and our Government needs to stop making it more difficult. The Fed must temporarily slow MBS purchases to allow pipelines to clear. Lawmakers need to allow for first payment defaults, due to forbearance, to be saleable. And finally, the Fed must more clearly communicate that Mortgage Rates and the Fed Funds Rate are not the same.

We have faith that the effects of the Coronavirus will subside and that things will become more normalized in the upcoming months.

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Source: MBS Hwy

Breaking News -Today Mortgage Rates Dropping

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March 21, 2020 8:30am

The Fed announce it will buy Treasuries and Mortgage Backed Securities today.

Mortgage Backed Securities are rallying with the price up 92 basis points this morning to $103.68.

The stock market futures reversed losses and were up as much as 497 points.

If the rally holds, it will result in lower mortgage rates today. Mortgage rate pricing come out between 10am and 11am.

Source: John Sauro

The Fed Rate Cut & Home Loan Rates

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The Fed cut rates this week by .50% due to the concerns that the Carona Virus will damage the current vibrant economy.  Contrary to the media hype, historically mortgage rates can actually rise and they did the day after the rate cut.

That’s because mortgage rates are not directly affected by a fed rate cut.

Rather mortgage rates are directly affected by the prices of mortgage bonds, known as the Mortgage Backed Securities Market. Specifically the Fannie mae and Freddie mac bonds. Not the 10 year treasury, as many would have you believe. The 10 year Treasury affects the commercial mortgage backed securities market used for commercial real estate loans, not home loans. Glad I could clear that up.

Mortgage rates dropped because of the stock market turmoil.  When the stock market drops, investors move their stock investments into the bond market this is known as “Flight to Quality”.

Flight to quality is the action of investors moving their capital away from riskier investments to safer ones. Uncertainty in the financial or international markets usually causes this herd-like shift.

Therefore the Price of the bond rises and inversely the rates tied to those bonds drops.

Below is a chart of the Mortgage backed Securities Market showing the rise in bond prices from January 16th to march 6th. An increase of 133 basis points, which results in approximately 50% reduction in mortgage rates.

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Once the fears and media hype about the Carona virus subsides, as did with the Swine Flu H1N1 Pandemic in 2009, the financial markets should recover. Especially with the current strong economy and its anybody’s guess when that will happen. 

So I don’t recommend trying to time the bottom on mortgage rates.

Rates are historically very low. many today were not around in 1992, when mortgage rates first fell from their highs of 17% to below 10%.  Yes that’s true, look it up.  Also rates tend to move up faster than they go down, as banks are not eager to pass the saving on to their customers.

My advice; Connect with a experienced Mortgage Professional, typically found not in the banks, but in the mortgage Broker/Lender community.

These professionals specialize only in lending and have access to many different loan programs. I’m going to toot my own horn here.

I have been in the Lending profession since 1991 and seen it all. Many of clients have done multiple loans with me over the years. Take a moment to see what my clients have to say.

Contact me for a Complimentary Consultation and see how much you can save. I’m an analyst, not a salesman.  If I can’t save you money on your refinance or home loan purchase no harm, no foul.

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Sources: Written by John Sauro North Atlantic Mortgage, Chart MBS Pro.

 

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Will Mortgage Rates Fall Further?

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Freddie Mac will release its Primary Mortgage Market Survey on Thursday, February 6, after the latest report revealed a continued drop in rates.

The average 30-year fixed-rate mortgage fell nine basis points on Thursday to an average rate of 3.51%, according to Freddie Mac’s Primary Mortgage Market Survey. 

“This week’s mortgage rates were the second-lowest in three years, supporting homebuyer demand and leading to higher refinancing activity,” said Sam Khater, Freddie Mac’s Chief Economist.

“Borrowers who take advantage of these low rates can improve their cash flow by lowering their monthly mortgage payments, giving them more money to spend or save.”

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Thursday’s rate is a drop from the prior weeks’ 3.60%. This time last year, the 30-year fixed-rate mortgage averaged 4.46%.

A report by FOX Business states that mortgage rates fell and applications surged due to investors’ growing concerns of how China’s coronavirus could impact economic conditions.

The Mortgage Bankers Association reported that applications surged 7.2% higher from the week prior for the week ending on January 24.

Danielle Hale, Chief Economist at realtor.com, told MReport that concerns about the coronavirus’ impact have driven investors into the security of bonds, “accelerating” the drop in 30-year mortgage rates.

“We expect these lower rates to stick around until the virus is better understood, the transmission is slowed, and treatment improves,” Hale said.

She added lower rates are one of several factors helping shift the rent-buy tradeoff back toward buying, even though renting remains the short-term winner in many large markets.

Hale, though, said prospective buyers find homes continue to be an issue, as the market is missing 3.8 million homes.

“Additional new construction is sorely needed to alleviate the current shortage and meet rising demand,” Hale said.

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Source:Daily Dose

Home Price Gains are Accelerating Again

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Home price gains continued to heat up in November, with Phoenix, Charlotte and Tampa leading the way, S&P Case-Shiller index says

KEY POINTS
  • Nationally, prices increased 3.5% annually in November, up from 3.2% in October, according to the S&P CoreLogic Case-Shiller National Home Price Index.
  • The 10-City Composite increased 2.0% annually, up from 1.7% in the previous month. The 20-City Composite rose 2.6% annually, up from 2.2% in October.
  • Prices are hottest in Phoenix, Charlotte, North Carolina, and Tampa, Florida.

After cooling for much of last year, home price gains are accelerating again.

Nationally, prices increased 3.5% annually in November, up from 3.2% in October, according to the S&P CoreLogic Case-Shiller National Home Price Index.

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The 10-City Composite increased 2.0% annually, up from 1.7% in the previous month. The 20-City Composite rose 2.6% annually, up from 2.2% in October.

Prices are hottest in Phoenix, Charlotte, North Carolina, and Tampa, Florida. Phoenix home prices were up 5.9% year over year in November. In Charlotte, they rose 5.2%, and in Tampa home prices increased 5.0%. Fifteen of the 20 cities reported larger price increases in the year ended in November 2019 compared with the year ended in October 2019.

“With the month’s 3.5% increase in the national composite index, home prices are currently 59% above the trough reached in February 2012, and 15% above their pre-financial crisis peak,” said Craig J. Lazzara, managing director and global head of Index Investment Strategy at S&P Dow Jones Indices. “November’s results were broad-based, with gains in every city in our 20-city composite.”

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Lower mortgage rates may be fueling home prices, as buyers gain purchasing power when rates fall. Mortgage rates were about a full percentage point lower in November 2019 than they were in November 2018.

A more powerful driver of prices, though, is the severe shortage of homes for sale. Inventories have dropped to near record lows, especially at the entry level of the market. Strong demand and tight supply only push prices higher. Inventories had been rising at the beginning of last year, causing prices to cool.

“It is, of course, still too soon to say whether this marks an end to the deceleration or is merely a pause in the longer-term trend,” added Lazzara.

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*The Annual Percentage Rate 2.982% is based on a single family owner occupied home loan with a maximum loan amount of $510,400 a  2.75% interest rate, 1.50 points, 30 day rate lock, Fixed Rate for 15 Years with a payment of $3,463.69, a 80% Loan to Value and a minimum credit score of 740. The  rates and annual percentage rate (APR) will vary depending upon the actual down payment percentages, points and fees for your transaction. The rates may change or not be available at commitment or closing or may be subject to product restrictions. Rates advertised are as of January 9, 2020.  Rates are subject to change without notice. 178 Trinity Pass, Pound Ridge NY 10576 * Registered Mortgage Broker, NYS Banking Department. Loans Arranged Through Third Party Providers . NMLS# 1375 & 42481

Source: CNBC

US Housing Starts Soar 16.9% in December to a 13-year High

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KEY POINTS
  • U.S. homebuilding surged to a 13-year high in December as activity increased across the board.
  • The data suggested the housing market recovery was back on track amid low mortgage rates, and could help support the longest economic expansion on record.
  • Housing starts jumped 16.9% to an annual rate of 1.608 million units last month, the highest level since 2006.

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U.S. homebuilding surged to a 13-year high in December as activity increased across the board, suggesting the housing market recovery was back on track amid low mortgage rates, and could help support the longest economic expansion on record.

Housing starts jumped 16.9% to a seasonally adjusted annual rate of 1.608 million units last month, the highest level since December 2006. The percentage gain was the largest since October 2016. Data for November was revised higher to show homebuilding rising to a pace of 1.375 million units, instead of advancing to a rate of 1.365 million units as previously reported.

Economists polled by Reuters had forecast housing starts would increase to a pace of 1.375 million units in December.

Housing starts soared 40.8% on a year-on-year basis in December. An estimated 1.290 million housing units were started in 2019, up 3.2% compared to 2018.

Building permits fell 3.9% to a rate of 1.416 million units in December after hitting their highest level in more than 12-1/2 years in November.

The housing market is regaining momentum after the Federal Reserve cut interest rates three times last year, pushing down mortgage rates from last year’s multi-year highs. The 30-year fixed mortgage rate has dropped to an average of 3.65% from its peak of 4.94% in November 2018, according to data from mortgage finance agency Freddie Mac.

Though a survey on Monday showed confidence among homebuilders dipped in January, it remained near levels last seen in mid-1999. Builders said they “continue to grapple with a shortage of lots and labor while buyers are frustrated by a lack of inventory, particularly among starter homes.”

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The housing market accounts for about 3.1% of the economy.  Residential investment rebounded in the third quarter after contracting for six straight quarters, the longest such stretch since the 2007-2009 recession. It is expected to contribute to gross domestic product again in the fourth quarter.

Single-family homebuilding, which accounts for the largest share of the housing market, jumped 11.2% to a rate of 1.055 units in December, the highest level since June 2007. Single-family housing starts rose in the Midwest and the populous South. They, however, fell in the Northeast and West.

Single-family housing building permits slipped 0.5% to a rate of 916,000 units in December after rising for seven straight months.

Starts for the volatile multi-family housing segment vaulted 29.8% to a rate of 553,000 units last month. Permits for the construction of multi-family homes fell 9.6% to a rate of 500,000 units.

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*The Annual Percentage Rate 2.982% is based on a single family owner occupied home loan with a maximum loan amount of $510,400 a  2.75% interest rate, 1.50 points, 30 day rate lock, Fixed Rate for 15 Years with a payment of $3,463.69, a 80% Loan to Value and a minimum credit score of 740. The  rates and annual percentage rate (APR) will vary depending upon the actual down payment percentages, points and fees for your transaction. The rates may change or not be available at commitment or closing or may be subject to product restrictions. Rates advertised are as of January 9, 2020.  Rates are subject to change without notice. 178 Trinity Pass, Pound Ridge NY 10576 * Registered Mortgage Broker, NYS Banking Department. Loans Arranged Through Third Party Providers . NMLS# 1375 & 42481

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Source: CNBC

Housing Predictions for the New Year

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Redfins economic team predicts the housing market will be more competitive in 2020 as the cooldown that began in the second half of 2018 comes to an end. Charleston and Charlotte will lead the nation in home-price gains, thanks to homebuyers moving in from expensive cities. Hispanic Americans will experience the biggest gains in home equity wealth. Climate change will become a much bigger factor for homebuyers and sellers. Read on for Redfin’s six housing market predictions for 2020.

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Prediction #1: Bidding wars will rebound thanks to low mortgage rates and a lack of homes for sale

Low mortgage rates will continue to strengthen homebuying demand, but due to a lack of new homes for sale and homeowners staying put longer, there will be fewer homes on the market in 2020 than in the past five years. More demand and less supply mean bidding wars will rebound in the first quarter. We expect about one in four offers to face bidding wars in 2020 compared to only one in 10 in 2019. This increase in competition will push year-over-year price growth up to 6% in the first half of the year, considerably stronger than the 2% growth seen in the first half of 2019. Supply and demand will become more balanced later in the year as more listings of new and existing homes hit the market, allowing price growth to moderate to 3%.

Prediction #2: 30-year fixed mortgage rates will stabilize at 3.8%

Throughout 2020, 30-year fixed mortgage rates will remain low, hovering around 3.8%. Faced with slowing economic growth, the Federal Reserve will keep interest rates low. Although the housing market is strong, weakness in other sectors, like manufacturing, is pulling down on the economy. Because investors are already bracing for the possibility of a recession, we don’t expect mortgage rates to fall much lower than 3.5% in 2020 even if the economy weakens. And even if the economy strengthens, we expect mortgage rates to stay below 4.1%.

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Prediction #3: For the first time, Hispanic Americans will gain more wealth from home equity than white Americans

In the next decade, Hispanic Americans will, for the first time, gain more home equity than white Americans. That’s because the majority of new homeowners are Hispanic, and home values in Hispanic neighborhoods are increasing faster than in white neighborhoods. There are more Hispanic homeowners in Texas than in any other state and Texas cities are likely to experience strong gains in home values over the next decade as people move here from more expensive places like San Francisco and Los Angeles.

Hispanic families will likely benefit from home-equity gains for generations to come. Hispanic Americans could tap their home equity to finance their children’s education or to start businesses. Over time, this will improve economic equality for Hispanic Americans.

Prediction #4: Climate change will become a bigger financial factor for homebuyers and sellers

In 2020, homebuyers and sellers will take the consequences of climate change into account when deciding to buy. The financial costs of climate change are already becoming more tangible as fire and flood insurance premiums rise. “More people are becoming hyper-sensitive to flood insurance and its costs,” said Houston Redfin agent Irma Jalifi. “They’re thinking about how the weather will change over the next decade and whether there will be more historic floods like we’ve experienced recently. I had a buyer back out of a deal because he found out the property required flood insurance.”

Over the next decade, higher insurance premiums in high-risk areas will make housing even less affordable to more people. And in areas with the highest risk, insurers may stop providing insurance altogether, which means it will be nearly impossible to secure a mortgage in those areas.

Prediction #5: Charleston and Charlotte will lead the nation in home price growth

Affordable Southeast cities like Charleston and Charlotte are attracting an increasing number of migrants from expensive cities, which will drive up home price growth in these areas. Charleston saw a 104% annual increase in the number of Redfin users looking to move in, relative to the number of users looking to move, out in the third quarter of 2019, and Charlotte saw a 44% increase. Migrants are attracted to the growing economies of Charleston and Charlotte—Microsoft is spending $23 million to expand its Charlotte campus, and in Charleston, the new Volvo plant is adding thousands of jobs.

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“A lot of migrants from up north or out west move to Charleston because it is such a lovely place—out of towners fall in love with our Cypress gardens and world-class beaches,” said Redfin agent and team manager Jacie Paulson. “The fact that we have an international airport means that companies are more willing to allow their remote employees to live here because it is easy to travel back and forth to headquarters. We also have a strong local economy with jobs at Boeing, Volvo, and in the military.”

Prediction #6: More city streets will become car-free

In 2020, we will see more cities favor green modes of transit and actively discourage driving. Some cities already have plans in the works—San Francisco’s Market Street will transform into a car-free corridor in 2020, and New York City drivers will have to pay to drive into the heart of the city beginning in 2021. In cities that become less car-friendly, those that frequently spend time in the city-center will place more value on a commute that doesn’t require a car and move to either the walkable city center or close to public transit. Meanwhile, some people will choose to avoid the city-center altogether and put a higher value on homes in the suburbs where they can work, play and live.

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Source: Redfin

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20 YEAR HIGH – Homebuilder Confidence

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Homebuilder confidence jumps to highest level in 20 years

KEY POINTS
  • Builder confidence in the newly built, single-family home market jumped 5 points in December to 76, the highest reading since June 1999.
  • Current sales conditions rose 7 points to 84, sales expectations in the next six months rose 1 point to 79 and buyer traffic increased 4 points to 58.
  • Regionally, on a three-month moving average, builder sentiment in the Northeast fell 2 points to 61, increased 5 points in the Midwest to 63, moved 1 point higher in the South to 76 and increased 3 points in the West to 84.

A stronger economy and a severe housing shortage have the nation’s homebuilders feeling better than they have in two decades.

Builder confidence in the newly built, single-family home market jumped 5 points in December to 76, the highest reading since June 1999, according to the National Association of Home Builders/Wells Fargo Housing Market Index. Anything above 50 is considered positive.

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November’s reading was also revised higher by 1 point. The index stood at 56 last December. At the worst of the housing crash, in 2009, builder sentiment hit a low of just 8.

“Builders are continuing to see the housing rebound that began in the spring, supported by a low supply of existing homes, low mortgage rates and a strong labor market,” said NAHB Chairman Greg Ugalde, a homebuilder and developer from Torrington, Conn.

Builders’ confidence is clearly based on what they’re seeing in their showrooms. Of the index’s three components, current sales conditions rose 7 points to 84, sales expectations in the next six months rose 1 point to 79 and buyer traffic increased 4 points to 58.

All, however, is not perfect in the homebuilding market. Builders could likely be doing even better if they didn’t face so many headwinds.

“While we are seeing near-term positive market conditions with a 50-year low for the unemployment rate and increased wage growth, we are still underbuilding due to supply-side constraints like labor and land availability,” said NAHB chief economist Robert Dietz. “Higher development costs are hurting affordability and dampening more robust construction growth.”

Regionally, on a three-month moving average, builder sentiment in the Northeast fell 2 points to 61, increased 5 points in the Midwest to 63, gained a point in the South to 76 and increased 3 points in the West to 84.

Source: CNBC