Housing is staging a comeback, and that’s likely to help economic growth the rest of the year.
The Fed’s tighter monetary policy caused housing to stall for most of the last year or so. Sales and construction were down, and prices increased at a lower rate.
After the Fed announced a pause in its tightening policy in late 2018, mortgage interest rates began falling. The average 30-year mortgage interest rate was 4.95% in November 2018. Since then it has dipped to just over 4%. In many areas, rates below 4% are available to borrowers with good credit scores.
Reduced mortgage rates are helping the housing market. The strongest response so far has been in new homes. In February, new home sales were at their highest level since March 2018. The new homes sold at an annualized rate of 667,000 compared to 584,000 in late 2018. Inventories of homes available for sale have declined.
Most of the buying seems to be among more affordable homes, because the median price of new home sales is lower. In recent months, the median price has been around $310,000. That compares to a cycle high of $342,000 in November 2017.
Other housing data have been slower to respond to lower mortgage rates, but at least part of that lag is due to the weather in many parts of the country so far in 2019.
Though existing home sales are down over 12 months, they had a strong increase in February and expectations are for a solid rise in March when the data are released.
Housing starts and permits were lower in February, but the numbers for January and December were revised higher. Also, housing completions are increasing.
Pending homes sales also seem to be improving, though the numbers are choppy from month to month.
Housing prices continue to increase, but the sluggish sales of the last year have kept the increases to a lower rate than a year or so ago.
Overall, housing seems to be making a bottom after suffering through the Fed’s tightening policy that began in 2016. The interest rate sectors such as housing were the first to turn down once the Fed began tightening monetary policy. Now, housing is responding positively to the Fed’s change in policy. We soon should see other sectors of the economy responding to lower market interest rates.
Consumer Sentiment, as reported by the University of Michigan, is recovering. The measure increased to 98.4 from 97.8. Both the current conditions and expectations segments of the survey had solid increases. This indicates retail sales might increase in coming months.
The latest retail sales reflect the declining consumer sentiment of previous months and show how volatile retail sales are. February’s sales were reported as down 0.2%. But January’s 0.2% increase was revised higher to a 0.7% climb. Excluding autos and gas, sales declined 0.6% in February. But January’s 1.2% increase was revised higher to a 1.7% jump. You might recall that retail sales for December were reported as a 1.6% drop.
Retail sales data are best looked at over several months. What we can conclude from the data is that economic growth slowed over the winter and still hasn’t bounced back.
Manufacturing appears to continue to grow at a modest rate. The PMI Manufacturing Index declined to 52.4 from 53.0. That’s the lowest level since June 2017. New orders were at a five-month low.
The ISM Manufacturing Index had better news, registering at 55.3 compared to 54.2. For several years, this index consistently has been more positive than other data and that trend continued this month. Taking all the manufacturing surveys together, the sector is growing but at a much lower rate than the ISM index suggests.
That’s confirmed by the Durable Goods Orders for February. Overall, orders declined 1.6%. When we exclude the volatile transportation sector, orders increased 0.1%. But core capital goods orders, which measure business investment, increased only 0.1%. Core capital goods orders for January were revised higher to a 0.9% increase from an initial 0.8% rise.
However, the non-manufacturing sector of the economy might be slowing. The PMI Services Index declined to 55.3 from 56.0. The business confidence component of the survey was at its lowest level since December 2017.
The ISM Non-Manufacturing Index declined even further to 56.1 from 59.7. The index was unusually volatile the last two months. This month’s dip was just a little greater than last month’s unexpected spike. Overall, these two indexes show the service sector is growing at a moderate rate.
New home sales increased by 4.9% in February, though the prior two months’ sales numbers were revised a little lower than initial reports. Even so, the three-month average is at the highest level since June 2018. Over 12 months, sales are up only 0.6%. This latest data support the idea that housing is forming a bottom after declining for a while.
There’s mixed news about the labor market ahead of tomorrow’s Employment Situation reports. The ADP Employment Report found 129,000 private sector jobs were created in March. That growth is well below expectations and the lowest number in 18 months. But February’s number was revised higher to 197,000 new jobs from 183,000. New unemployment claims declined by 10,000 to 202,000. That’s the lowest level since 1969.
The Chicago PMI continues its historic volatility. It declined to 58.7 from 64.7. So, last month’s eight-point increase was followed by a seven-point decline. The six-month average is 60.0. That indicates growth but is the lowest level in two years.
The Personal Income and Outlays numbers still are incomplete and a month or two behind because of the government shutdown. The numbers we have indicate that personal income increased very modestly over the winter and spending was flat or perhaps down a little.
The PCE Price Index showed prices increased very little during that period. Over 12 months, the PCE Price Index rose 1.4% while the core index (excluding food and energy) jumped 1.8%. Both measures are below the Fed’s 2% target.
The S&P 500 surged 2.42% for the week ended with Wednesday’s close. The Dow Jones Industrial Average added 2.30% and the Russell 2000 gained 2.57%. The All-Country World Index (excluding U.S. stocks) rose 2.72%, with the emerging market equities increasing 3.77%.
Long-term treasuries declined 1.84% for the week. Investment-grade bonds fell 0.40%. Treasury Inflation-Protected Securities (TIPS) lost 0.33%, while high-yield bonds increased 0.51%.
On the currency front, the dollar rose 0.35%.
Energy-based commodities added 2.25%. Broader-based commodities increased 1.01%, while gold declined 1.52%.
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