The Real on Real Estate August 2016

U.S. Home Construction Posted Solid Gain

Construction of new homes posted a solid increase in June, led by a surge of building in the Northeast and the West.

The Commerce Department said recently that housing starts rose 4.8 percent to a seasonally adjusted annual rate of 1.19 million from a revised 1.14 million in May. The June reading was the highest level since February, but was down from 1.21 million a year earlier. Construction of single-family homes rose 4.4 percent to 778,000.

During the housing boom of the mid-2000s, housing starts sometimes ranged above a 1.7 million annual rate. In the bust that followed, they fell below 600,000. Over the past year, they have mostly stayed between 1.1 million and 1.2 million. Builders this year have been eager to put up more single family houses, a switch from recent years when they focused more on apartments.

Super-low mortgage rates and a growing job market have encouraged home buying.

"Continued job creation coupled with rising wages and low interest rates bodes well for a broader rebound in housing demand as well as consumer spending," Neil Shankar, U.S. regional economist at TD Economics, wrote in a research note.

Builders completed work on nearly 1.15 million homes at a seasonally adjusted annual rate, highest since September 2008. Completions of apartments and condominiums - buildings with more than five residential units - reached 386,000, highest since February 1989.

Homebuilders remain confident about the outlook for the new-home market, according to a recent survey. The National Association of Home Builders/Wells Fargo builder sentiment index dipped to 59 in July from 60 in June. But readings above 50 indicate that more builders view sales conditions as good, rather than poor.

Freddie Mac Posts $993M Profit in Q2

Mortgage giant Freddie Mac reported net income of $993 million for the second quarter, down sharply from the same period of 2015. Falling interest rates during the period caused the company to post an estimated $400 million loss on the investments it uses to hedge against swings in rates.

The company said its income from fees received from lenders for guaranteeing mortgages increased in the April-through-June period, but it sustained losses on investments because of the decline in interest rates.

Record-low interest rates this year have helped spur home purchases and boost the housing market.

The Federal Reserve has been holding its key short-term rate near zero since 2008, and a statement from the Fed after its latest policy meeting had led many economists to conclude that a strengthening economy would lead the central bank to resume raising rates as soon as September. But after a recent government report showed a surprisingly lackluster economy last quarter, many economists said a September rate hike was now probably off the table. The Commerce Department data showed that gross domestic product — the broadest gauge of the economy — grew just 1.2 percent in the April-June period.

Freddie and Fannie own or guarantee about half of all U.S. mortgages, worth about $5 trillion. Along with other federal agencies, they back roughly 90 percent of new home loans.

Freddie said its income from guaranteeing mortgages increased to $124 million in the April-June quarter from $92 million a year earlier.

The housing market's revival over the last four years has been choppy, and it has lagged behind the rest of the economy. Despite the low borrowing rates that could lure prospective homebuyers, the market has remained hampered by tight mortgage credit, rising home prices and stagnating incomes.

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