The housing market rebound continued in April. New home starts and sales were boosted significantly higher in April by the rush to get sales contracts by the end of the month expiration for the homebuyer tax credit. However permits fell 12% since April was too late to turn a permit into a sale by the tax deadline. The fall in permits is a preview the temporary drop in starts, beginning in June or possibly May, and a temporary drop in sales beginning in July or possibly June.
The economic environment in the housing market is now strong enough to support a resumption of the housing recovery later in the summer without a new round of public subsidies. This strength has already appeared in recent reports on jobs, income and confidence. While each of these metrics remains at a recession level, their steady improvement is raising both the capacity and will to purchase new homes. The several month decline in mortgage rates stemming from the public deficit crisis in Europe also improves the economic environment for housing.
The inventory of new homes for sale in April dropped about 5% to 212,000. This is an extremely low level, about half of the 2004 level early in the housing boom. The current 4.4 months of new home for sale inventory is the near the bottom of the average range. Months supply will likely rise to the 6.0 level in the next few months when post tax credit sales decline. This would inventory near the top of the average range. This is still low enough to require homebuilders to match any sales increase with additional starts.
The impact of federal housing subsidies is stil ebbing. The homebuyer tax credits are no longer available. Three quarters of the homeowners who got three months of reduced mortgage payments in the HAMP program are now losing the subsidy for failure to make the reduced payments and will be forced into a short sale or foreclosure. Congress appears to have decided that the unemployment benefit program will not be extended beyond 99 weeks so an increasing number of households will lose these weekly checks. Also, the Federal Reserve Board has stopped buying mortgage bonds from the federal housing agencies. The progressively rising share of private money needed to finance mortgages will keep upward pressure on mortgage interest rates.