U.S. Housing Data Turns Positive; Industrial Production Improves

Americans are jumping into the housing market as interest rates on mortgages plummet, and businesses across the country are betting on more demand from consumers.  The Census Bureau reported that privately owned housing starts rose 1.8% year-over-year in January to 1.099 million, with single-family housing starts accounting for two-thirds of the total.

Americans are jumping into the housing market as interest rates on mortgages plummet, and businesses across the country are betting on more demand from consumers.  The Census Bureau reported that privately owned housing starts rose 1.8% year-over-year in January to 1.099 million, with single-family housing starts accounting for two-thirds of the total.

Privately owned housing units rose 13.5% year-over-year, as developers see a need for housing in a recovering property market. Many analysts note the rising demand for houses is coming from lower mortgage rates, which have continued to fall steeply as long-term Treasury rates decline, even as the Federal Reserve pushes to increase borrowing costs.

In reality, the Fed seems largely powerless to stop the slide in mortgage rates, as banks continue to compete and see lower returns on invested capital. According to the Mortgage Bankers Association, purchases rose 30% on a year-over-year basis as interest rates for fixed-rate mortgage fell to 3.83%. Points, which are discount rates borrowers, pay to get a lower rate, also fell to 0.36 from 0.41, including origination fees, on loans offered to borrowers putting down payments of 20% on home purchases.

Refinancing activity also rose by the middle of February, according to the MBA, which saw its Refinance Index rising 16% on a weekly basis to see its highest level since 2015.

Industrial Production, Fed Caution

Additional bolsters to the U.S. economy came from the Federal Reserve, which saw industrial production rise 0.9% in January after falling 0.7% in December. The Fed also noted that demand for heating drove the jump, with utilities production rising 5.4%.  Manufacturing, which had signaled contraction in recent ISM reports, showed a 1.2% year-over-year production increase, while capacity utilization in industries rose to 77.1%, just 2.9 percentage points below the long-term average.

After the surprising decline in manufacturing and industrial activity in December, and growing volatility in equity markets combined with rising corporate defaults, the Federal Reserve also acknowledged that its previous optimism on the economy was perhaps too early. The majority of the Federal Open Market Committee expressed concern about weakening exports and a lack of significant improvement in the job market.

“Net exports have been soft and inventory investment slowed. A range of recent labor market indicators, including strong job gains, points to some additional decline in underutilization of labor resources,” the FOMC said in a press release.

Many economists believe this could be a signal that the Fed will slow down the pace of its interest rate hikes, with some outlying analysts predicting a reversal that would make lending even cheaper. The implications this would have on the housing market would be broadly positive, and could boost house prices in the country even further, after several years of recovery since the subprime lending crisis of 2007-2008.