CCL Market Update: Housing Market Index, Housing Starts, Mortgage Applications, Existing Home Sales, FOMC Meeting, Fed Chair Press Conference, Jobless Claims, FHFA House Price Index

Housing Market Index

The housing market index fell three points in September to a level of 64, matching July as the weakest month of the year. Buyer traffic remains under the breakeven point of 50 down one point to 47 reflecting lack of first time buyers who are being kept out of the new home market by high prices and lack of available properties. Six month sales are down four points to 73 with current sales also down four points to 70.

Housing Starts

The housing starts report includes some effects of Hurricane Harvey, but is mostly solid. Housing starts came in slightly higher than expected at a 1.180 million annualized rate. Single family starts are a major positive in the report, up 1.6 million to an 851,000 rate and offsetting a 6.5 percent decline in multi-family units to a 329,000 rate. Permits on the other side of the report, came in decidedly stronger than expected at a 1.300 million rate and do not include any significant effects from the hurricane. But, strength in permits is confined to multi-family homes which surged 19.6 percent to a 500,000 rate with single-family permits the only real negative in the report, as they were down 1.5 percent to 800,000. Revisions are positive with July starts upgraded to 1.190 from 1.155 million and July permits now at 1.230 vs. an initial 1.223 million. Completions were another area affected by the hurricane Harvey, falling 10.2 percent to 1.075 million with the South, where the storm hit, down 22.2 percent to a rate of 491,000. Revisions are positive with July starts upgraded to 1.190 from 1.155 million and July permits are now at 1.230 vs. an initial 1.223 million. Completions, also affected by the hurricane fell 10.2 percent to 1.075 million.

Mortgage Applications

Purchase applications for home mortgages fell a seasonally adjusted 11 percent in the week of September 15th, while refinancing applications fell 9 percent. The outsized decline in purchase applications entirely erased an increase of the same magnitude in the week prior., when results were adjusted for the Labor Day Weekend. Unadjusted, the purchase index increased 10 percent and was 2 percent above the level the same week a year ago. The refinance share of mortgage activity increased to 52.1 percent, up 1.1 percentage points from last week.

Existing Home Sales

Reflecting hurricane weakness in Houston, existing home sales came in at the low end of estimations at 5.350 million annualized rate for a 1.7 monthly decline. Sales in the South, where the storm hit, fell 5.7 percent in the month to a 2.150 million rate though sales in the West also fell down 4.8 percent to 1.200 million. These were offset by a 2.4 percent gain in the Midwest to a 1.280 million rate. The split between single family homes and condos shows a 2.1 percent decline for the former to a 4.740 million rate and a 1.7 percent gain for the latter to 610,000. Year on year, single family sales are barely in the plus column at 0.4 percent with condos negative at minus 1.6 percent. Total sales are up fractionally at 0.2 percent. Prices have been doing better than sales at a year on year gain of 5.6 percent. But August was a weak month for prices, down 1.8 percent on the median to $253,500 for the second straight decline. Lack of supply is a major factor in the housing market data, down 6.5 percent year on year for resales at 1.880 million which on a monthly basis is down 2.1 percent. Supply relative to sales is at a tight 4.2 months for a fourth month in a row.

FOMC Meeting

As expected, the FOMC announced the unwinding of its $4.5 trillion balance sheet beginning in October. There is no change to the funds rate which stays at a range of 1.00 to 1.25 percent. For unwinding, the committee is holding to its June statement that will allocate rollover amounts across maturities based on the proportions it holds. Unwinding, which will take several years to unfold, will begin gradually at $6 billion cap (limit) for treasuries and $4 billion for mortgage backed securities. The caps will increase in three month intervals by $6 billion for treasuries and $4 billion for mortgage backed securities until they reach $30 billion per month for the former and $20 billion for the latter. The economic assessment is also steady with job growth said to be continuing and economic growth activity described as moderate. Temporary hurricane effects are cited and include a rise for gasoline prices though the inflation outlook remains unchanged running below their 2 percent goal. Quarterly FOMC forecasts continue to see one more rate hike this year, with median projections unchanged for 2017 and 2018 at three 25 basis point hikes penciled in each year, to 1.4 and 2.1 percent respectively. There is a change to 2019 which is trimmed back to a median 2.7 percent from 2.9 percent with the long run call cut back two tenths to 2.8 percent. Median projections for 2017 GDP growth are up 2 tenths to 2.4 percent with GDP seen slowing to 2.1 percent next year followed by 2.0 in 2019 and 1.8 percent in 2020. The unemployment rate is unchanged from June forecasts at 4.3 percent this year with 2018 and 2019 each cut one tenth to 4.1 percent. Core PCE inflation is cut 2 tenths this year to 1.5 percent and 1 tenth next year to 1.9 percent. The core is seen at 2.0 percent in both 2019 and 2020.

Fed Chair Press Conference

Janet Yellen repeated that this year’s down draft in inflation is likely temporary, the result of one-time factors. She expects inflation to move higher and stabilize around the FOMC’s 2 percent goal, though she did say there are risks that inflation may continue to run below 2 percent. Yet, citing history, she said tightness in the labor market tends to push up wages over time and with that price inflation along with it. On balance sheet unwinding which is set to begin next month, she does not see any adjustments outside of the scheduled path. Yet should the economy significantly deteriorate, she said that the FOMC could change reinvestment caps, stop rolloffs or resume reinvestment. On employment she was pleased with progress and describes the 4.4 percent level as “quite low” and notes special progress among minorities who were hit hardest after the financial crisis.

Jobless Claims

Initial claims fell sharply and unexpectedly in the week of September 16th but may reflect the inability of displaced workers in hurricane states to file claims. Claims fell 23,000 to 259,000 thought the four week average did rise 6,000 to 268,750. Claims from Florida, which had to be estimated in the prior week, doubled to nearly 10,000 though claim from Texas, which jumped more than 50,000 to over 60,000 immediately following Harvey’s landfall, fell back for a second week to roughly 28,500 which is still double than normal. Continuing claims in lagging data for the week of September 9th, may be showing some hurricane effects, rising a sharp 44,000 to 1.980 million though the four week average is only marginally higher at 1.953 million and the unemployment rate for insured workers is unchanged at 1.4 percent.

FHFA House Price Index

Indications on home prices have been cooling including July’s FHFA house price index which managed only a 0.2 percent gain with the year on year rate down 2 tenths to 6.3 percent. Though slowing, price growth of roughly 6 percent is still very strong especially in a low interest rate, low inflation economy. Slowing appreciation will help improve affordability and perhaps give a boost to sales as well.