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That reduction of supply does not in itself guarantee a revival for the depressed homebuilding industry, but it does remove one obstacle.

Historically, there was a loose relationship between the population over 16 years of age and the number of new homes sold each year, with an average of 376 homes sold for every 100,000 people from 1963 though 1996. The rate fluctuated with the economy, of course, falling during recessions and when interest rates were high, and rising when the economy recovered or interest rates were declining. But the booms were mild compared with the one that came in the middle of the last decade. Then, when the credit crisis and recession arrived, homebuilding collapsed.

Combining the boom and the bust, new-home sales have actually adhered to the historical average. From 1997 through March of this year, the average rate was 375 homes sold per 100,000 people. But, during the boom from 1997 until 2007, 1.8 million more new homes were sold than would have been expected under the historic average. Since 2007, two million fewer homes have been sold than would have been expected.

That calculation would seem to indicate that there is no longer a large overhang of available new homes for sale. That is confirmed by government figures indicating that at the end of March, there were only 144,000 new homes for sale, the lowest level since the government began collecting data in 1963. Of those, 48,000 had been finished, with the rest either planned or under construction. In early 2008, 199,000 finished homes were for sale.

The supply has not been exhausted in all areas, of course. Areas where speculation was most intense, like Las Vegas, still may have too many homes available for sale.

A low supply of new homes does not, by itself, affect demand, and there are reasons demand remains subdued. Many new homes are historically sold to homeowners moving up. Those homeowners need buyers for their existing homes, and they may be hard to find now. In addition, many homeowners cannot trade up now because they owe more on their old homes than the houses are worth.

Other impediments to a significant rise in new-home sales include stringent credit standards for new mortgages and the psychological scars left from the collapse in home prices.

There are indications that fewer households have been formed in recent years than would have been expected from population growth. More young adults have stayed with their parents, while other people who lost their homes or jobs were forced to move in with relatives. If and when the economy improves, many of those people could seek housing of their own, creating a sudden increase in demand.

A major reason the recovery from the 2007-9 recession got off to a slow start was the lack of a contribution from the homebuilding industry. That may be changing. In the first quarter of this year, reported Friday, residential investment was estimated to have grown at an annual rate of 19 percent. The figure was up 8.8 percent from the same quarter a year ago, for the largest annual rise since 2004.

Similarly, while sales of new homes remain low by historic standards, the number of sales in the first quarter of this year was up 17 percent from the same period of 2011. That was also the best year-over-year gain since 2004.

Floyd Norris comments on finance and the economy at nytimes.com/economix.

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Today's rental market continues to grow more competitive, with national vacancy rates for rental housing hitting their lowest point in 10 years in the first quarter of this year, U.S. Census Bureau data says.

"A shift from owners to renters has caused rental vacancies to keep going down even more," says Jed Kolko, chief economist of listing service Trulia, of the new shape of the market.

The rental vacancy rate dropped from 9.7 percent in first quarter 2011 to 8.8 percent in first quarter 2012, Census Bureau data shows. The drop was accompanied by a decline in the homeownership vacancy rate -- which measures the segment of the housing inventory which is vacant and for sale. It fell from 2.6 percent in first quarter of 2011 to 2.2 percent in first quarter 2012.

The fall in the rental vacancy rate highlights a continuing shift in Americans' living habits from homeownership to renting, and follows in the wake of a housing crisis that has put around 4 million Americans out of their homes, and trapped more than 10 million people under the weight of mortgages that exceed the values of their properties. Speaking to the fallout from the bursting of the real estate bubble, the new U.S. Census Bureau data also showed that the homeownership rate reached its lowest level since 1997 in the first quarter of 2012.

The inflated demand for rentals also has driven up rental rates. In fact, buying was more affordable than renting in 98 of the nation's 100 largest metro areas as of February, Trulia's rent vs. buy index said.

The "renting process will get more stressful as people are chasing after a smaller number of available units," Kolko says. 'As vacancy rates get lower, rents rise because you have people competing for fewer available units"

The rising rental demand won't reverse course anytime soon, Kolko says, since many people who could save money by buying rather than renting are still unable to qualify for mortgages due to strict lending standards.

Steve Halpern, a senior associate Realtor at New York brokerage CitiHabitats is witnessing the frenzy of rental activity firsthand, and he says that pressure on renters to act fast and pay high rates isn't likely to ease up anytime this year: Landlords will continue to capitalize on growing demand by jacking up rates, by the Realtor's estimation.

"They're going and hitting people with raises, but those people realize the raises are happening everywhere, so they're staying put," Halpern says.

With particular attention to the unique challenges posed by the current market, Halpern offers some tips that may give you a leg up in today's rental hustle.

1. Be flexible about location.

Naturally, the places where people want to live most are going to be the toughest areas to get a deal, so try to be open to living in neighborhoods that aren't as mainstream as you might like. "Most people come in and say, 'I need to be in a particular area, and those areas are generally the tightest," Halpern says.

2. Allow more time for your search, but be prepared to pounce.

Since you're competing with so many other apartment hunters, be prepared to give yourself a little more time to hone in on a rental that meets your needs. Find a Realtor whom you trust to help you identify windows of opportunity, Halpern says.

When they arrive, seize them immediately. "You gotta catch an apartment as it comes up," Halpern says. "You have to be prepared to move quickly."

3. Have your paperwork on hand (or maybe we should say "in hand").

That means proof of income (often in the form of a letter from your employer), your last two years of tax returns and a recent pay stub, for starters, Halpern says. If you're at an open house with 20 visitors, acting fast could mean the difference between winning and losing. Having your paperwork on hand will enable you to increase your odds of success when you know you've found a good deal.

4. Know your credit, be ready to explain blemishes.

"Knowing where you stand credit-wise can really make a difference," Halpern says. If you have credit blemishes, offering an honest and upfront explanation may help you stand out from the crowd. After all, in today's market, chances are that landlords will find out if you're hiding anything and won't appreciate uncovering information that suggests you misrepresented yourself to them, Halpern says. "They prefer you being honest and upfront," Halpern says, "so you can justify to them what has happened."

5. Consider moving in earlier than planned.

If you're willing to sign a lease that goes into effect even just a week earlier than you'd planned, you may significantly increase your appeal to a landlord. Landlords want to fill vacancies quickly, so they're looking for renters who are willing to begin paying sooner than later. "They're going to want you in there as soon as possible," Halpern says.

6. Be willing to pay a higher rate than advertised.

If you really think you've found a place that's right for you, offering to pay a slightly higher rate, even just $25 or $50 a month more, Halpern says, could work in your favor. The draw to landlords is pretty straightforward: "They're in business; they want to make as much money as possible."

See also:
Tips for Finding a Rental Apartment
First-Time Renting Tips
Neighborhood Hunting Made Easy

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The list of Improving Housing Markets (IHM) maintained by the National Association of Home Builders (NAHB) took another big jump in February, rising from 76 in January and more than doubling the 41 reported in December.  There are now 98 metropolitan areas representing 36 states included on the list.

The IHM identifies metropolitan areas that have shown improvement from their respective troughs on each of three metrics - employment, housing permits, and home prices - for at least six consecutive months.  NAHB uses data from the Bureau of Labor Statistics, the U.S. Census Bureau, and Freddie Mac to measure improved performance.

The additions to the February Index include some metropolitan areas that had been particularly weak including Miami, Detroit, Memphis, Kansas City, Missouri; Portland, Oregon, and Salt Lake City.  NAHB points out that inclusion in the Index does not indicate strong recovery, merely that some of these troubled areas are coming off of extreme lows.

Seven metro areas dropped off of the Index in February due to softening housing prices.  One of these was Washington, DC, one of the few areas that had continued to show strong prices and sales through 2011. 

"While many of the markets on the February IMI are far from fully recovered, the index points out where employment, home prices and housing production are no longer retreating and have held above their lowest recession troughs for six months or more," said NAHB Chief Economist David Crowe. "This is a sign that a large cross section of the country is starting to turn the corner as local economic conditions stabilize."

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After setting new record lows yesterday, Mortgages Rates rose slightly today, though 3.875% best-execution remains intact.  Rather than affect the prevailing rates being quoted, today's weakness is most likely to be seen in the form of slightly higher borrowing/closing costs for the same rates quoted yesterday (learn more about how we calculate Best-Execution in THIS POST).  The increases run counter to today's market movements as well.  

Treasury yields are lower again today, and MBS (the "mortgage-backed-securities" that most directly govern interest rates) are slightly improved as well.  One reason that loan pricing hasn't adjusted to match that fact is that MBS weakened late in the trading session yesterday.  Not all lenders priced that in by issuing adjusted rate sheets, instead reflecting the changes in this morning's rates.  The MBS market was indeed weaker this morning, so if we're comparing the time of day that most lenders put out their first rate sheets, today was indeed worse than yesterday.  Beyond that objective explanation, we also have to consider the fact that continued rate improvements from all-time lows are going to continue to be slow and hard-fought.  Lenders have little incentive to offer lower rates if current offerings are generating more-than-sufficient demand.  (read more on this topic in this previous post)

Finally, and although it's not the only other potential factor, this Friday's Employment Situation Report (aka "jobs report," or "NFP") represents a high-risk situation, ESPECIALLY with mortgage rates at or near all-time lows.  NFP, which stands for the the reports chief component "Non-Farm-Payrolls" is generally regarded as the single most important piece of economic data each month.  Even against the current backdrop of European headlines exerting more and more influence on domestic markets, it's immensely important.  Based on where markets sit right now, we think that rates are somewhat vulnerable if the report is better-than expected.  In other words, there's a certain natural level of "push-back" at current rate levels anyway, and a bullish jobs report would probably accelerate that. 

This, of course, is contingent on the report coming in with better-than-expected results.  If the opposite happens, rates could still improve.  It's just that those improvements would likely be slower and smaller than the losses would be in the opposite scenario.  It's also very much contingent on rates not moving much between now and Thursday afternoon, which may or may not be the case.

Today's BEST-EXECUTION Rates

30YR FIXED -  3.875% mostly, with a few lenders on either side of this
FHA/VA -3.75%
15 YEAR FIXED -  3.25%, some lenders venturing lower, some completely stuck at 3.25%
5 YEAR ARMS -  2.625-3.25% depending on the lender

Ongoing Lock/Float Considerations

Rates and costs continue to operate near all time best levelsCurrent levels have experienced increasing resistance in improving much from hereThere are technical reasons for that as well as fundamental reasons
Lenders tend to get busier when rates are in this "high 3's" level and can throttle their inbound volume by raising rates or costs.While we don't necessarily think rates are destined to go higher, given the above facts, there seems to be more risk than reward regarding floatingBut that will always be the case when rates operating near historic lows(As always, please keep in mind that our talk of Best-Execution always pertains to a completely ideal scenario.  There can be all sorts of reasons that your quoted rate would not be the same as our average rates, and in those cases, assuming you're following along on a day to day basis, simply use the Best-Ex levels we quote as a baseline to track potential movement in your quoted rate).You can see a list of all comments on MND by clicking the 'Read the Latest Comments' option under the 'Community' menu.

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One of the more confusing MBS topics is the concept of "dollar rolls."  While it seems esoteric, secondary markets people are implicitly considering the dollar roll market every time they make the judgment to sell one month's settlement over an earlier or later month.  A "roll" is a transaction where a TBA security is bought or sold, and an offsetting trade for a different settlement month is executed simultaneously.  For example, buying 1mm Fannie 3.5s in February and simultaneously selling 1mm Fannie 3.5s in March is trading in a dollar roll.  Rolls are quoted by the price difference between months; as an example, if the price for FN 3.5s in February is 100-00 (par) and the price in March is 99 24/32s, the difference (or "drop") is 8/32s.

A few other terms will be helpful:

The early month is referred to as the "front month," and the later month is the "back month."The drop between months is almost always positive (meaning that the front month usually is the higher price)
Buying the front month and selling the back month is "buying the roll," while selling the front month and buying the back month is "selling the roll." (To avoid confusion, remember that the person buying anything will make money if it goes up in price; a relative decline in the price of the back month would cause the drop to expand.)

The reason that the drop is usually positive is that there is economic value to taking delivery of securities (in this case, MBS pools) and holding them for a horizon period, as opposed to buying it for the horizon date.  The value results from carry (i.e., interest accrued from holding the securities over the holding period net of funding costs) and reinvestment income; the holder also accepts the monthly paydowns resulting from scheduled and unscheduled principal payments (i.e., amortizations and prepayments).  (Note that the situation is reversed in the commodities markets.  For example, gold does not pay interest, but can be costly to store; therefore, a buyer of bullion would pay more to buy it for a later settlement.)

Next time:  calculating a roll's "cost of funds," and understanding the technical factors that drive the dollar roll market.

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