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First Cut: NAHB/Wells Fargo Housing Market Index holds near recent highs in February

The NAHB/Wells Fargo Housing Market Index dipped to 74 in February from 75 in January and the near-term peak of 76 in December. The slight decline over the past couple of months is negligible and does not suggest any appreciable softening in homebuilder optimism.  The level remains only a little below the record high of 78 in December 1998. In fact, the index hasn’t seen such good back-to-back-to-back readings since mid-1999. Activity remains significantly above that seen a year ago.

Attractive mortgage rates, strong employment, and rising incomes have contributed a vigorous housing market in spite of the time of year. Homebuilding has increased to meet demand, especially while stocks of existing homes are limited in the more sought-after price and size ranges. Homebuilders are responding and homebuyers are opting to contract for units not yet under construction or only started.

The component for present sales was essentially unchanged at 80 in February after 81 in January, as was that for expected sales at 79 after 80, and buyer traffic at 57 after 58.

The Freddie Mac average rate for a 30-year fixed mortgage was 3.60% in January, down 12 basis points from December. The decline for February to-date is even more marked at down 14 points to 3.46%, a low not seen since 3.46% in September 2016. It remains to be seen if the winter is borrowing some activity from the spring. I anticipate it will, but if mortgage rates remain this low, it could generate some fresh demand that will make up the difference.

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