Housing starts are up more than they've been in 23 years but will higher rates get in the way?
Remember when we were told that Fed taper fears would wreck the housing market? Someone never told the housing market.
Housing starts weren't just up in the month of November. They were up a lot. Thanks to last month's huge bump in housing starts, the seasonally adjusted annual rate is 1.09 million new units, according to the US Commerce Department, the government agency that tracks such things. That puts housing roughly where it was at the beginning of 2008, just before the financial crisis hit.
This means housing starts are up 29.6% compared to last November. What's more, the increase of 22.72% over the previous month was the highest gain in housing starts since February 1990.
Of course, this wasn't supposed to happen right now.
Mortgage rates in the US have been steadily climbing over the past several months. A year ago, the average fixed-rate 30-year mortgage had an interest rate of 3.34%. Rates remained in the middle of the 3% range until this past May, when Federal Reserve Bank Chairman Ben Bernanke hinted the Fed would begin tapering its $85 billion monthly bond-buying stimulus program.
Fears of a Fed taper led to a massive selloff in bonds and an increase in US Treasury bond yields which move inversely to bond prices. With mortgage rates benchmarked to government bond yields, the costs for borrowers went up, too. The 30-year mortgage rate is now at 4.42%.
While applications for mortgages were up 2.21% in November compared to October, they were actually down 5.16% compared to November 2012, according to data from the Mortgage Bankers Association.
(Read more: Mortgage applications plummet amid uncertainty)
Thus, while more homes are being built in anticipation of buyers, fewer people are applying for mortgages to buy homes.
So, do homebuilders have too much optimism or will the future be as bright as they think? And, are higher rates something to worry about?
In the video above, CNBC contributor Andrew Busch, editor and publisher of The Busch Update, discusses what's next for housing. Looking at the charts on the SPDR S&P Homebuilders ETF (the XHB) is Talking Numbers contributor Richard Ross, Global Technical Strategist at Auerbach Grayson.
Watch the video above to see what Busch and Ross think is next for housing.
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