News & Opinions
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Home Builders Buoyed by Fed Decision, August Home Starts
Kris Hudson / The Wall Street Journal / September 18, 2013
Home builders got a double boost on Wednesday from a report of resilient construction of single-family homes in August and the Federal Reserve’s decision to continue efforts to boost the economy and keep interest rates low.
Still, many housing-market observers see signs of a continued slowdown in price increases for new homes and possibly for new-home sales as well.
The Fed’s decision Wednesday afternoon to maintain its quantitative easing program for keeping interest rates low helped push the Dow Jones U.S. Home Construction Total Return Index to a 5.9% gain by the end of Wednesday. Investors’ reasoning: A halt or slight reversal in the rise in interest rates – up by roughly 1 percentage point since May – will help spur home sales to previously hesitant buyers.
That likely will be true. The trouble is that the Fed’s action simply pushes back an inevitable reduction of the bond-buying program and a subsequent increase in rates. In addition, buyers already began balking at purchases in recent months, stymied not only by rising interest rates but also by double-digit percentage increases in new-home prices.
“What this tells me is that mortgage rates are probably going to remain where they are for the time being, possibly into next year,” said Brad Hunter, chief economist for home-building consulting firm Metrostudy, a division of Hanley Wood. “But it’s still kicking the can. At some point, rates will start to go higher (and) the rate of home-price increases that we’ve seen over the past 12 months is going to be much, much slower.”