WASHINGTON (2/20/14)--The housing market is continuing to take a beating from winter weather, according to a pair of reports published Wednesday, and it appears to be dragging down the entire economy.
Mortgage applications measured by the Mortgage Bankers Association fell by 4.1% for the week ending Feb. 14, while housing construction starts grew by 880,000 annualized units in January, according to the Census Bureau.
The January housing starts were down 16% on a month-to-month basis, 2% on an annual basis, and lower than expected (Economy.com Feb. 19).
The findings caused prominent economists to revise down their forecasts for first quarter GDP growth. Barclays cut its forecast for annualized growth by three-tenths of a percentage point, while Morgan Stanley and Macroeconomic Advisers both reined in forecasts by one-tenth of a point (MarketWatch Feb.19).
The Census report also revealed that, while completions were up by 4.6% on monthly basis, permits were down by 5.4%, meaning that construction could lag over the coming months.
In addition to an unusually cold winter, longer-term drags on housing demand have also hindered building, as the most recent MBA report showed. The trade association's indexes of purchase and refinancing were both down by 2.7% and 6.3% on a weekly basis, and 62% and 14% on an annual basis (Economy.com Feb. 19). A four-week moving average of refinance activity is up by 13% over the past month, but near a five-year low, according to Moody's. A 12-week moving average of the purchase index is also at a two-year low.
The ratings and research firm said this is due to higher interest rates, which are expected to increase more in 2014. Although the latest MBA report showed key interest rising for only the first time in about a month and a half, they are significantly higher on a yearly basis--the average contract rates for 30-year fixed-rate and 5-year adjustable-rate mortgages are up by 72 basis points and 54 basis points. For the week ending Feb. 14, the former was up by five basis points to 4.5%, while the latter was up by nine basis points to 3.2%. The average rate for a 30-year fixed-rate jumbo mortgage was also up on a weekly basis, by five basis points to 4.45%.
Analysts believe the downturn will reverse soon, despite the rising interest rates. Moody's said that the state of the industry won't be clear until the springtime, when it expects stronger demand due to diminished uncertainty over fiscal conditions and expected gains in the jobs market. MarketWatch said that building data should recover in March and April, as firms speed up construction in warmer weather.
Moody's did warn, however, that rising interest rates, higher material and land costs, and labor and lot scarcity could constrict supply more than its analysts currently expect.