Home building, mortgage rates experience increases

A surge in home building activity so far this year has provided many options for prospective buyers, but rising interest rates could make the investment more expensive.

A surge in home building activity so far this year has provided many options for prospective buyers, but rising interest rates could make the investment more expensive.

During the month of July, new home starts rose 21.5 percent from a year earlier to an annualized rate of 746,000 units, according to a report from the Department of Housing and Urban Development. This was well above the rate of 614,000 starts recorded a year earlier.

There was a decline of 6.5 percent in single-family housing starts, to a rate of 537,000 units, the report said. However, this was offset by a growing number of construction projects on developments with five or more housing units.

Meanwhile, property construction completions rose 7.1 percent in July from the previous month, to an annual rate of 668,000 units.     

"With recently improved homebuilder sentiment corroborating, it looks like housing is on a modest uptrend," analysts from Econoday said. "Equity futures were little changed on the news. Released at the same time, jobless claims were very close to expectations."

Mortgage rates increase

Although the increase in home building activity could help grow the dwindling property inventory, fixed mortgage rates increased once again during the week ending August 16, according to a report from Freddie Mac.

Specifically, 30-year FRMs averaged 3.62 percent, up from 3.59 percent a week earlier, the report said. Meanwhile, 15-year FRMs averaged 2.88 percent, which was a slight increase from 2.84 percent.  

Freddie Mac vice president and chief economist Frank Nothaft attributed the mortgage rate gains to economic developments. 

"The latest economic indicators point toward low inflation but gradually stronger economic activity which placed further upward pressure on long-term Treasury yields and, in turn, fixed mortgage rates," Nothaft said. 

Other improvements, such as a stabilizing inflation rate and growth in industrial production, also contributed. In addition, retail sales increased 0.8 percent in July from the previous month, Nothaft added. This could be an indicator consumers are more willing to spend money and could lead to a rise in homebuying activity in the latter half of 2012.



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