Housing Starts declined 2.6% last month and Building Permits are down 2.5%. Only 1.172 million front doors were installed on new residences in the last year–well below expectations. A fully thriving housing industry is expected to average 1.5 million newly constructed edifices per year going forward. With all the new projects underway, is feels like new construction should be registering a 30-40% growth rate. Actually, the breakdown shows that single-family homes are up 8.9% from this time last year, while multi-family projects have declined 15.1%. Multi-unit dwellings account for about 30% of new housing, so overall, Starts are up 0.7% from last April. Interestingly, numbers nerds have found that each single-family home contributes on average, about twice the amount to our nation’s GDP as a dwelling in a multi-unit building.
In related news, Fannie Mae said this morning that the tight supply of homes for sale continues to act as both a boon to home prices and an impediment to affordability. Thank you, Captain Obvious.
One thing that many people don’t know about me is that I started college as a fine arts major and actually received a degree in that subject. Aside from doodling to stay awake in church, I haven’t pursued drawing or painting for a very long time. Sometimes though I run across a painting or a photo or even a song that captivates my attention and then speaks to my soul. I think that’s human nature, inherent to most people and not exclusively birthed during the two years spent on the third floor of the Spori Building of Rick’s College.
When I read about the market volatility this morning and my grade-school children reminded me that it was March 1st, I immediately thought of how the month comes in like a lion and out like a lamb. Here are some lion-ish factors to the downside of economic growth published today: Federal Reserve Bank of New York President William Dudley commented that he is less confident than he was before and sees the U.S. economic outlook tilting to the downside. The ISM Survey (a lion in its own right as the king of manufacturing indices) still shows a negative outlook for the production and fabrication sector.
The positives for growth are Core Logic reporting a 6.9% year-over-year rise in home prices since this time last year, and the Fed Fund Futures now showing a 52% chance of a rate hike by the end of 2016. The Futures sentiment has been fickle as of late and flies in the face of Mr. Dudley’s statements this morning. All the same, 52% is essentially a coin toss. We welcome with open arms the continued, measured, price increases noted in the housing markets across the country.
Out of the 19 seasons that Yogi Berra played professional baseball, he was in 15 All-Star Games and competed in 14 World Series–winning the championship 10 times. With stats like that, is it any wonder that he is praised as one of the greatest players of all time? One of my favorite sayings attributed to him is “you can observe a lot by watching”. It resonates because that’s all I do to produce this column every morning; I watch and read until something interesting pops up and then I attempt to turn it into useful entertainment. We do the same thing in our professional practices: listening to the client and asking key questions to better ascertain how we can help them accomplish their goals, while keeping them interested in using our services.
Speaking of stats, Weiss Residential Research reported that the number of appreciating homes has declined more than 12% over the last year. They also said that there are three times as many homes losing value every month than there were the year prior. Pretty sure that I saw this on my eighth grader’s homework last night: (x-0.12=3x)? No word on what type of homes these are, where they are located, nor the cause of the depreciation. Given the price appreciation of housing calculated by every other publication this year, a possible explanation for their conclusions could be that the exploited sampling is very small and the reasons could be fire, flooding, or possibly anywhere around Citizens Bank Park in Philadelphia where the Phillies’ winning percentage is only 37%.
Building Permits rose 11.8% and Housing Permits sank 11.1%. The yin-yang numeration is uncanny. I ‘d like a little more balance in my personal numeration since I lost my wallet yesterday. While the credit cards and driver license will all be magically replaced with just a little bit of effort, the cash that was in there (which was more than I usually carry since I was out of town for the weekend) remains out of balance. I throw that out there for the universe to note. But if I don’t see the cash again, oh well, worse things have happened.
And speaking of looking for cash and worse things happening, the debt crisis in Greece may be coming to a head over the next few weeks. If the country defaults on its debt, they would cause significant economic unrest in the European Union. On the plus side, interest rates would come back down.
Back on our shores, the two day FOMC meeting starts up again today, with their eight-times-per-year statement about the Fed’s monetary policy being released at mid-day tomorrow.
UP: 49% of those participating in the Fannie Mae National Housing Survey feel that it’s a good time to sell a home. Forty-nine percent is a new high for the survey.
Another new high: the Job Opening and Labor Turnover Survey (JOLTS) shows that there were 5.4 million job openings in the U.S. at the end of April–the most since JOLTS began 15 years ago by the Bureau of Labor Statistics.
DOWN: Homes in foreclosure declined 20% since this time last year. Also down is the likelihood that Greece’s proposal of debt restructure will be approved by creditors. Even still, mortgage pricing is al the lowest since last October.
Another Home Price Index shows that houses have appreciated 6.8% since this time last year. Different methodologies yield different conclusions, but the bottom line is that up is always good. Unless we are talking about interest rates of course, which are trending up this morning on the heels of a weakening dollar, a rebound in domestic stocks, and a bounce in the German Bund yield.
Existing Home Sales rose 6.1% last month to 5.19 million annualized units, which was 2.7% more than analysts expected. Not only are more homes being sold, but FHFA (Fannie & Freddie’s mother with a less-catchy name) reports that housing prices climbed 5.4% since April 2014.
Bond pricing is tanking this morning, putting upward pressure on interest rates. Perennial shoppers should be advised that that these great rates won’t last forever.
The Fed’s Beige Book comes out today, though I don’t expect any surprises. Speaking of the Fed, I anticipate that they won’t touch rates until at least October of this year. The Empire Manufacturing report, which was expected to show a reading of 7.3, came in at a -1.2 this morning. This index only tracks the manufacturing segment within the state of New York.
A more important measure of our industry, the Housing Market Index, beat expectations by one point with a 56. The Housing Market Index measures builders’ gauge of the housing market throughout the country. Remember that the higher the number the better, and with the HMI, 50 is the baseline for positivity. Though we’ve been floundering near that level for some time, I would anticipate this index to skyrocket over the next few months as the inventory of existing homes for sale continues to decline.
Easing off the throttle by another $10B, the Fed will purchase a total of $15,000,000,000 in mortgage backed securities and Treasuries (10 billion in Treasuries and five billion in mortgages) next month. This is down from the original 85 billion per month when Quantitative Easing began almost six years ago…. The DOW took the news well, closing at another all-time record high of 17,156, up 24 points, while Mortgage Bonds lost 25 basis points to fuel the surge in Stocks. The DOW is up almost 100 already this morning as Mortgage Backed Securities settle in at the lowest price of the last five month, putting upward pressure on interest rates.
Although they are phasing out their purchase of long term debt, the Federal Open Market Committee yesterday reaffirmed their commitment to keep the Fed Funds Rate (which directly affects short term interest rates like credit cards) at the current level for a “considerable time”.
Among this morning’s data released, Building Permits decline 6% to just under 1MM (annualized), and Housing Starts are also just under 1MM, a drop of over 14% from the month prior. Jobless Claims fall 36K to just 280,000 new filings for Unemployment Compensation last week.
Hearing a client’s gasp this morning who hasn’t applied for a mortgage in awhile reminded me of how incredible these interest rates really are, so I thought I’d share with you this graph depicting the history of 30 year fixed rate loans for the last 40 years. Stocks are retreating after a few days of record-high closes, sending cash back into Bonds and stabilizing interest rates.