Construction: Nothing Taking Off in US
The slow recovery in the real estate sector has recently surprised and concerned the directors of monetary policy at the Federal Reserve, but it is not clear that they can do much about it.
In the meantime, the real estate industry is recovering from the inactivity generated by the strong winter of this year's first trimester; growth in 2014 necessarily will be less than projected in the United States, Colombia's primary trading partner.
With this in mind, Janet Yellen, the board chair of the U.S. Federal Reserve, recently stated that the perspectives of the industry constitute a risk to the economy as a whole, and that its weak performance surprises her, although she hopes that the gross domestic product will return to a growth course nearing 3 percent.
There, the expectation is that for the second trimester of 2014 economic growth will reach 3.25 percent, or 0.25 percent less than the initial estimate of 3.5 percent.
Construction contractors are facing rising costs, difficulties in hiring qualified workers and a drop in available land, and have directed their strategy to developing large products that have higher costs, leaving behind those that people can pay for in general. In each case, lack of credit and the need to resort to private moneylenders with higher lending rates is affecting contractors.
According to statistics by the National Association of Realtors, sales of used homes grew a few days ago for the first time this year, but even so, the figure is 7 percent less than in 2013, while at the same time the sales of new single-family homes last month were 4.2 percent lower than those seen the previous year.
It Is Not a Problem of Rates
Mortgage interest rates are not the problem; though they have recently dropped because of expectations of a continuing expansive monetary position on the part of the Fed, this decrease is not going to have a large impact on demand, particularly when the market expects that [demand] will rise once again in 2015 after the expected economic strengthening.
Currently in the United States, the average rate of a mortgage loan at 30 years is 4.14 percent, namely 0.55 percent more than the 3.59 percent registered in 2013. When the credit supply is validated, we find that although it has improved these past few years, it continues to be much lower than what are considered normal levels.
One need only look at the availability index of mortgage credit: MBA reached 113.8 points in April of 2014, a much lower level than the 414.8 at the end of 2004, just before the most recent real estate boom.
Remember that the recent housing crisis was very deep and drawn out, and that it takes time to once again transfer resources. In some markets, the prices of homes seem to be lower than the cost of construction, to the point that those markets remain too unprofitable to bring about new work. Additionally, student debt has caused young Americans to prefer living with their parents to having their own homes, which diverts from the buying of homes.
For now, the variables that invigorate this industry are out of the Fed's reach, and although [the Fed] could potentially influence mortgage rates by administrating its monetary policy, the reality is that it cannot do much. It will be difficult to revive the rhythm of construction with the difficulties of funding and lack of demand.
For now, the housing weakness will not be a sufficient reason to alter the monetary policy's trajectory and withdraw the stimuli, which are being used to diminish the high liquidity these days.
In the meantime, the real estate industry is recovering from the inactivity generated by the strong winter of this year's first trimester; growth in 2014 necessarily will be less than projected in the United States, Colombia's primary trading partner.
With this in mind, Janet Yellen, the board chair of the U.S. Federal Reserve, recently stated that the perspectives of the industry constitute a risk to the economy as a whole, and that its weak performance surprises her, although she hopes that the gross domestic product will return to a growth course nearing 3 percent.
There, the expectation is that for the second trimester of 2014 economic growth will reach 3.25 percent, or 0.25 percent less than the initial estimate of 3.5 percent.
Construction contractors are facing rising costs, difficulties in hiring qualified workers and a drop in available land, and have directed their strategy to developing large products that have higher costs, leaving behind those that people can pay for in general. In each case, lack of credit and the need to resort to private moneylenders with higher lending rates is affecting contractors.
According to statistics by the National Association of Realtors, sales of used homes grew a few days ago for the first time this year, but even so, the figure is 7 percent less than in 2013, while at the same time the sales of new single-family homes last month were 4.2 percent lower than those seen the previous year.
It Is Not a Problem of Rates
Mortgage interest rates are not the problem; though they have recently dropped because of expectations of a continuing expansive monetary position on the part of the Fed, this decrease is not going to have a large impact on demand, particularly when the market expects that [demand] will rise once again in 2015 after the expected economic strengthening.
Currently in the United States, the average rate of a mortgage loan at 30 years is 4.14 percent, namely 0.55 percent more than the 3.59 percent registered in 2013. When the credit supply is validated, we find that although it has improved these past few years, it continues to be much lower than what are considered normal levels.
One need only look at the availability index of mortgage credit: MBA reached 113.8 points in April of 2014, a much lower level than the 414.8 at the end of 2004, just before the most recent real estate boom.
Remember that the recent housing crisis was very deep and drawn out, and that it takes time to once again transfer resources. In some markets, the prices of homes seem to be lower than the cost of construction, to the point that those markets remain too unprofitable to bring about new work. Additionally, student debt has caused young Americans to prefer living with their parents to having their own homes, which diverts from the buying of homes.
For now, the variables that invigorate this industry are out of the Fed's reach, and although [the Fed] could potentially influence mortgage rates by administrating its monetary policy, the reality is that it cannot do much. It will be difficult to revive the rhythm of construction with the difficulties of funding and lack of demand.
For now, the housing weakness will not be a sufficient reason to alter the monetary policy's trajectory and withdraw the stimuli, which are being used to diminish the high liquidity these days.
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