LIVE MARKETS-Fixer-uppers: Fed day housing data

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FIXER-UPPERS: FED DAY HOUSING DATA

As investors await the Fed's expected rate cut on Wednesday afternoon, two seemingly contradictory housing market reports show a sector struggling for footing even as elevated mortgage rates - a barrier to ownership for many potential home buyers - begin to cool in tandem with the broader economy.

Groundbreaking on new American homes USHST=ECI unexpectedly slid by 8.5% in August to 1.307 million units at a seasonally adjusted, annualized rate (SAAR), according to the Commerce Department.

That's 4.2% weaker than the 1.365 million units SAAR analysts were expecting and marks a sharp reversal from July's 3.4% increase.

Peeking under the hood, single-family projects - which account for the lion's share of the total - tumbled 7.0%, while the starts in the volatile multiple-unit segment plunged 11.7%.

Building permits USBPE=ECI - considered one of the housing market's more forward-looking indicators - fell 3.7% to 1.312 million units SAAR, also falling 4.2% short of consensus.

The breakdown shows a 2.2% drop in permits for single-family projects, with multiple-unit permits falling 6.4%.

"It seems all of the data are cooperating for the Fed to adjust rates today and communicate an acceleration of cuts this year," says Jamie Cox, Managing Partner at Harris Financial Group. "Housing and employment are not the bright spots they once were."

The dire report echoes the National Association of Home Builders' (NHAB) homebuilder sentiment data released on Tuesday, which showed pessimism in the sector wallowing at the bleakest level in several years.

"The downturn in homebuilding is gathering considerable momentum," writes Samuel Tombs, chief U.S. economist at Pantheon Macroeconomics. "Consumers’ low confidence and heightened concerns about job security represent ongoing headwinds to demand."

Tombs adds, however, that falling mortgage rates "should shore up demand for single-family units soon."

Speaking of the devil, the cost of financing home loans cooled down last week, provoking a surge in applications, according to the Mortgage Bankers Association (MBA).

The average 30-year fixed contract rate USMG=ECI slipped 10 basis points to land at 6.39%, the coolest it's been in nearly a year.

That tracks well with the benchmark Treasury yield, which also lost ground last week.

The lower financing costs led to a 2.9% increase in demand for loans to purchase homes USMGPI=ECI, which, like building permits, is considered among the most forward-looking housing indicators.

But the real eye-opener was the 57.7% surge in refi applications USMGR=ECI, which accounted for 59.8% of total mortgage activity as mortgage holders rushed to take advantage of the lower rates.

Combined, mortgage demand jumped 29.7%.

"Indicative of the weakening job market, and in anticipation of a rate cut from the Federal Reserve, mortgage rates last week dropped to their lowest level since last October," says Mike Fratantoni, MBA's chief economist.

While the 30-year fixed rate has taken a roller coaster ride over the last 12 months, it is now 24 basis points above where it sat the same week a year ago.

Over that same time frame, purchase and refi demand have grown by 19.1% and 69.6%, respectively.

(Stephen Culp)

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