|
April 21, 2000
We were due a quiet week After last week's stock market circus, and we got one. Mortgage rates are holding the bottom of the 2000 range (the same as the top of July-December 1999), 8.00-8.25% depending on the fee package.
In this holiday-shortened week, the stock market rebounded enough that no one should expect its recent weakness to inhibit the Fed's plans to tighten. The Fed will tighten at its May 16 meeting, and the only question is how much... more .25% dripping on the national forehead, or a switch to .50% or .75% whacks with the old 2 X 4.
Early estimates have GDP growth during the first 90 days of 2000 perking along at 6%-plus -- which, by itself suggests another .25% drip. However, any further evidence of actual inflation, and things are going to get tougher.
In this week's only note-worthy economic data, housing starts declined 11.2% in March. Commentators leapt to the conclusion that the overall economy is beginning to slow, led by a housing market weakened by rising mortgage rates.
Oh-for-three. The economy is not slowing, the housing market is not weakening, and mortgage rates are not rising.
So, why the drop in housing starts?
The evidence is anecdotal, but the stories are so consistent from market to market, coast to coast, that I think the conclusion is clear: the national housing market has been so hot for so long that it has sucked the supply of buildable land out of the future pipeline.
It takes time to prepare land for construction, to annex, plat, subdivide, and provide street/utility infrastructure. And, anti-sprawl forces everywhere are complicating and extending the governmental approval process (a damn good thing, it sez here).
A few years of demand way above trend, and one day, one local market at time, the supply of land is gone.
MGIC, the mortgage insurer, periodically reports on the condition of the housing market nationwide. Its report is not a curiosity piece, but a deadly serious guide to its underwriters for risk evaluation.
Of MGIC's 73 metropolitan regions on April 1, only five were reported "soft" -- and three of those five are in perpetually soft upstate New York (Buffalo, Syracuse, Rochester), plus Philadelphia and Honolulu.
Twenty-two metro areas -- one third of the country -- are reported "strong", which in MGIC's conservative system translates as over-the-top-crazy-auction-above-list-price. Another nine regions are "improving" their way to strong.
I'll leave aside any thought about a real estate bubble linked to the stock market bubble, and stick to the basics: starts are down because we've run out of ground, and any new reports of falling home sales will be due to a shortage of listings, not some imaginary rise in mortgage rates or slowing economy.
|
