Rates Stay Low, Builders’ Optimism Wanes

Across the country, mortgage rates drifted a little lower in a pre-holiday week, according to HSH Associates, a leading financial publisher. The average 30-year fixed rate mortgage slipped to 6.37 percent, a drop of .04 percent from the previous week, while 5/1 Hybrid ARMs crept downward by a lone basis point, closing the week at 5.93 percent.

Despite holiday closings and abbreviated work schedules, a fair bit of economic data was put out this week, almost all of it positive. The economy entered the fourth quarter of this year on a bit of a roll, as evidenced by the final GDP report for the third quarter of ‘05, which has the economy growing at a 4.1 percent annualized rate during that quarter.

The Federal Reserve recently expressed concern that heavy growth would result in levels of “resource utilization” which could, in turn, exacerbate inflation. Despite lower-than-predicted growth numbers, the inflation measurement contained in a Fed report (Personal Consumption Expenditures, or PCE) was moved slightly higher to a 3.7 percent annualized rate.

HSH also reports that energy prices have been higher this year than last (certainly no shock to most Americans), but flares of inflation have subsided and oil prices have cooled off a bit of late. For November, the Producer Price Index (PPI) declined by 0.7 percent, a larger fall than was expected, and the “core” PPI rose by a slender 0.1 percent. Year to date, headline PPI is 4.5 percent higher, while the “core” PPI has risen by a modest 1.8 percent.

Despite a strong economy and outrageous energy costs, overall inflation has remained low in 2005 — one of the key reasons that long-term mortgage rates are still relatively low. Also low is the optimism of the National Association of Home Builders (NAHB) whose index of builder sentiment slumped to a reading of 57 for December as traffic levels of potential buyers has fallen off sharply. It marked the lowest reading from the trade group since May 2003.

While still at an acceptable level, the index represents a sharp turnaround from as recently as June, when a 72 mark was reached. The bleaker outlook didn’t stop builders from breaking ground in November, though, when new constructions climbed 5.3 percent to an annualized 2,123,000 homes. Levels of new permits also suggests we will see more growth; the 2.5 percent rise in permits mean future construction may hit a 2,155,000 unit pace.

No doubt about it, the Florida home loan market, like the national real estate market, is very much in flux, with experts agreeing that a dropoff in sales is imminent but divided as to how extreme the decrease will be. For example, Central Florida real estate is still selling at record levels, despite an increase in inventory. We will keep you posted as more data is released on the trends so highly speculated upon.