Taper? Housing Starts Surge Higher

U.S. housing starts climbed, despite fears of a QE taper, and have reached their highest level in almost six years for the month of November. This is more ammunition for the Federal Reserve, if they so choose, to cut even more off of QE at their January meeting.

The Commerce Department reported a 22.7 percent jump in housing starts. This is the biggest jump since January of 1990. We saw a print of 1.09 million units in November which is the highest number since February of 2008.

The report also said groundbreaking for new homes (under construction) was up 1.8 percent in October. The number has fallen 1.1 percent in September. These numbers were delayed thanks to the 16 day Federal Government shutdown in October.

We had expected 950K new units for November and 910K new units in October. Expectations were beaten easily.

A slowing housing market has concerned the Federal Reserve, which led many to believe the taper of the massive QE program would be delayed till Q1 of 2014. These numbers helped change the mind of the Fed, who initiated taper this past week by shaving $10 billon a month off its $85 billion a month asset purchase program. They cut Treasuries and mortgage backed assets equally.

Even though we have seen mortgage rates rising as of late, demand has increased enough to move the housing sector out of its multi-decade low. Last month we saw groundbreaking for single family homes spiking 20.8 percent higher to 727K units. We have not seen this growth pace since March 2008. Multifamily homes rose nearly 27 percent to 364K units.

The ever volatile multifamily home market has been rising strongly as bank lending procedures and a high unemployment number have priced people out of single home purchases.

Permits for home building fell 3.1 percent in November to 1.01 million units. We were still above the expected 990K units. This fall is considered temporary as homebuilder confidence rose in December. Builders are satisfied with sales, both current and future.

The continued improvement in the housing sector is another indication of an improving economy. We need to watch the U.S. 5 year Treasury yields which are now approaching 2.95 percent. This rate helps determine mortgage rates. Higher mortgage rates could derail this shaky recovery. However, for now, new home buyers and builders have not been deterred by the end of the Fed’s QE program or by the rise in bond yields.