November Existing Home Sales, December Mortgage Apps

December 20, 2017 by Robert A. Dye, Ph.D., Daniel Sanabria

November Existing Home Sales, December Mortgage Apps
Existing Home Sales Gain for Third Consecutive Month, December Apps Looking Softer

  • Existing Home Sales increased by 5.6 percent in November, to a 5,810,000 unit annual rate.
  • Mortgage Applications for the week ending December 15 fell by 4.9 percent.

Existing home sales surged in November according to the National Association of Realtors, capping three consecutive monthly gains. Sales increased by 5.6 percent, to a 5,810,000 unit annual rate. This was the strongest sales rate since the economic recovery began in July 2009. The Midwest saw the biggest gain, up 8.4 percent for the month, followed by the South at 8.3 percent and the Northeast at 6.7 percent. The West saw a 2.3 percent decline in existing home sales in November. The months’ supply of existing homes on the market dipped to a very tight 3.4 months’ worth. In November, the median sales price of an existing home was up by 5.8 percent over the previous 12 months. Tight supply will keep upward pressure on house prices this winter.

We expect the single-family housing market to continue to grow through 2018. However, there is a complex mix of forces acting on it. Job and wage gains, consumer confidence and increasing household wealth are expected to be positives through next year. Rising mortgage rates will be a small-to-moderate negative. Tax reform is a complex case. Lower federal tax bills for most U.S. households will be a positive for real estate markets. However, the lower limit of the mortgage deduction, plus the limit on state and local tax deductions, may be a small-to-moderate headwind in some areas. About 94 percent of homeowners have mortgages of less than $750,000 and 95 percent pay less than $10,000 in property taxes, according to the NAR. So, tax reform items specific to housing will not be an issue for the strong majority of U.S. households.

Total mortgage applications fell by 4.9 percent for the week ending December 15, following a 2.3 percent drop the week before. Purchase apps fell by 5.5 percent, while refi apps were down by 3.2 percent. Solid mortgage activity in November looks like it will be followed by a weaker December. According to the Mortgage Bankers Association, the rate for a 30-year fixed rate mortgage eased to 4.16 percent. We expect that to gradually increase through 2018.

Market Reaction: U.S. equity markets are mixed. The 10-year Treasury bond yield is up to 2.47 percent. NYMEX crude oil is up to $57.49/barrel. Natural gas futures are down to $2.62/mmbtu.

This will be our last Comerica Economics publication of the year.
Happy Holidays and we will see you in 2018!

To subscribe to our publications or for questions, contact us at ComericaEcon@comerica.com. Archives are available at http://www.comerica.com/insights.
Follow us on Twitter:@Comerica_Econ.

For a PDF version of this report click here: Existing_Home_Sales_12202017

The articles and opinions in this publication are for general information only, are subject to change, and are not intended to provide specific investment, legal, tax or other advice or recommendations. The information contained herein reflects the thoughts and opinions of the noted authors only, and such information does not necessarily reflect the thoughts and opinions of Comerica or its management team. We are not offering or soliciting any transaction based on this information. We suggest that you consult your attorney, accountant or tax or financial advisor with regard to your situation. Although information has been obtained from sources we believe to be reliable, neither the authors nor Comerica guarantee its accuracy, and such information may be incomplete or condensed. Neither the authors nor Comerica shall be liable for any typographical errors or incorrect data obtained from reliable sources or factual information.

 

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November Housing Starts

December 19, 2017 by Robert A. Dye, Ph.D., Daniel Sanabria

November Housing Starts
Single-Family Construction Boosts Starts

  • Housing Starts increased by 4.8 percent in November to a 1,297,000 unit annual rate.
  • Residential Construction Permits decreased by 1.4 percent to a 1,298,000 unit pace in November.
  • National Association of Home Builders says builder confidence increased in early December.

Total housing starts increased by more than expected in November on the strength of single-family construction. Starts increased by 3.3 percent for the month, to hit a 1,297,000 unit annual rate. Single-family housing starts increased by 5.3 percent in November, reaching a 930,000 unit annual rate. Although still tame by historical standards, November was the strongest month for single-family starts this side of the Great Recession. Multifamily construction metrics are weaker. Multifamily starts fell by 1.6 percent in November, to a 367,000 unit annual rate. This is well below the peak 507,000 unit rate from June 2015. Total permits eased by 1.4 percent, to a 1,298,000 unit pace. Permits for single-family construction gained 1.4 percent, while multifamily permits dipped by 6.4 percent in November.

The trend in multifamily construction still looks soft. Many markets were overbuilt by 2016, resulting in weaker rent growth in 2017. Total residential construction activity remains subdued compared to previous business cycle peaks. On the one hand, the push from housing in this business cycle has been weak. On the other hand, the subdued market still has room to run, especially on the single-family side. Looking ahead, there is a complex mix of positives and negatives for the residential construction industry in 2018. We expect to see higher mortgage rates in 2018 as the Federal Reserve continues to tighten monetary policy. The new tax plan, which may receive final congressional approval this week, will cap deductions to mortgages below $750,000. Pluses for housing include a strong labor market and high consumer confidence. We expect to see the single-family market continue to make moderate gains in 2018.

The National Association of Homebuilders says builder confidence in the single-family market increased in early December. According to the NAHB, builder confidence increased in 2017 on hopes of an improvement in the regulatory environment.

Market Reaction: Stock indexes were down. The yield on 10-year Treasury bonds is up to 2.44 percent. NYMEX crude oil is up to $57.42/barrel. Natural gas futures are down to $2.75/mmbtu.

To subscribe to our publications or for questions, contact us at ComericaEcon@comerica.com. Archives are available at http://www.comerica.com/insights.
Follow us on Twitter:@Comerica_Econ

For a PDF version of this report click here: Housing_Starts_12192017

The articles and opinions in this publication are for general information only, are subject to change, and are not intended to provide specific investment, legal, tax or other advice or recommendations. The information contained herein reflects the thoughts and opinions of the noted authors only, and such information does not necessarily reflect the thoughts and opinions of Comerica or its management team. We are not offering or soliciting any transaction based on this information. We suggest that you consult your attorney, accountant or tax or financial advisor with regard to your situation. Although information has been obtained from sources we believe to be reliable, neither the authors nor Comerica guarantee its accuracy, and such information may be incomplete or condensed. Neither the authors nor Comerica shall be liable for any typographical errors or incorrect data obtained from reliable sources or factual information.

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November Retail Sales, December UI Claims

December 14, 2017 by Robert A. Dye, Ph.D., Daniel Sanabria

November Retail Sales, December UI Claims

Higher Gasoline Prices Support Strong Sales

  • Retail Sales increased by 0.8 percent in November, supported by higher gasoline prices.
  • Initial Claims for Unemployment Insurance fell by 11,000 for the week ending Dec. 9 to hit 225,000.

November retail sales came in stronger than expected, expanding by 0.8 percent. Service station sales increased by 2.8 percent as gasoline prices increased. The nominal dollar value of motor vehicle sales fell by 0.2 percent as unit sales dropped to a 17.5 million unit rate in November. We expect to see further declines in unit auto sales in the coming months as the push from hurricane-related vehicle replacement fades. Ex-autos, retail sales increased by 1.0 percent in November. The strength in other retail sales categories is consistent with our expectation of an overall strong holiday shopping season.

Furniture store sales increased by 1.2 percent in November. Electronic and appliance store sales gained 2.1 percent. Building material sales were up by 1.2 percent. Clothing stores saw a 0.7 percent lift. Sporting goods stores increased sales by 0.9 percent. Nonstore retailers won the month, increasing sales by 2.5 percent, continuing to gain market share. Good labor market conditions, high consumer confidence, increasing house prices and a climbing stock market are all supportive of a strong holiday shopping season. Congressional Republicans have reached an agreement on a final tax bill. Full details are expected to be released shortly. Final approval in the House and Senate may come next week. President Trump is expected to sign the bill without delay. Amongst other compromises, the corporate tax rate was bumped up to 21 percent.

Labor metrics remain strong. Initial claims for unemployment insurance fell by 11,000, hitting 225,000 for the week ending December 9. This is just shy of the lowest initial claims number for this business cycle which was 223,000 from the week ending October 14. Continuing claims dropped by 27,000 for the week ending December 2, to hit 1,886,000, the third-lowest continuing claims number in this business cycle. 

Market Reaction: Equity markets opened with gains. The 10-year Treasury yield is up to 2.38 percent. NYMEX crude oil is up to $56.68/barrel. Natural gas futures are down to $2.69/mmbtu.

To subscribe to our publications or for questions, contact us at ComericaEcon@comerica.com. Archives are available at http://www.comerica.com/insights. Follow us on Twitter:@Comerica_Econ.

For a PDF version of this report click here: Alert_12142017.

The articles and opinions in this publication are for general information only, are subject to change, and are not intended to provide specific investment, legal, tax or other advice or recommendations.  The information contained herein reflects the thoughts and opinions of the noted authors only, and such information does not necessarily reflect the thoughts and opinions of Comerica or its management team.  We are not offering or soliciting any transaction based on this information.  We suggest that you consult your attorney, accountant or tax or financial advisor with regard to your situation.  Although information has been obtained from sources we believe to be reliable, neither the authors nor Comerica guarantee its accuracy, and such information may be incomplete or condensed.  Neither the authors nor Comerica shall be liable for any typographical errors or incorrect data obtained from reliable sources or factual information.  

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Federal Reserve Monetary Policy

December 13, 2017 by Robert A. Dye, Ph.D., Daniel Sanabria

Fed Raises Fed Funds Rate for Third Time in 2017, Indicates Three More Rate Hikes in 2018

  • The Federal Reserve voted to increase the benchmark fed funds rate range to 1.25-1.50 percent.
  • They raised the median forecast for real GDP growth in 2018 to 2.5 percent.
  • The new Dot Plot remains consistent with three more fed funds rate hikes in 2018.

 

As widely expected, the Federal Open Market Committee voted today to increase the fed funds rate range by 25 basis points to 1.25-1.50 percent. In today’s monetary policy announcement, the FOMC said that economic activity has been rising at a solid rate in the fourth quarter. They acknowledged that core inflation was running below 2 percent, but they expect it to stabilize near the 2 percent objective over the medium term. This is an important issue because the threat of rising inflation is at least a partial justification for ongoing interest rate increases. If core inflation does not increase as the Fed expects, then it will come under pressure to dial back the pace of interest rate increases. The Fed expects that economic conditions will evolve in a manner that will warrant gradual increases in the fed funds rate over time. There were two dissents in today’s vote, one from Chicago Fed President Charlie Evans and the other from Minneapolis Fed President Neel Kashkari, both of whom would have preferred to leave the fed funds rate unchanged at this meeting.

The Fed issued a new set of economic projections. The economic projections call for about 2.5 percent real GDP growth for 2018, higher than the September projections which called for 2.1 percent real GDP growth in 2018. In her press conference, FOMC chairwoman Janet Yellen said that the likelihood of tax reform was a factor in the stronger economic projections. The new set of economic projections also call for a lower unemployment rate for 2018, now expected to be 3.9 percent, lower than the 4.1 percent forecast from September.

The Fed also issued a new dot plot of FOMC member’s expectations for the fed funds rate over time. The new dot plot for 2018 is similar to the last one issued in September. The new dot plot is consistent with three fed funds rate hikes in 2018 and three more in 2019.

Yellen held her last press conference as chairwoman of the FOMC after the release of the policy announcement. She fielded questions about the impact of tax reform and on lower-than-expected wage growth, among others. She was praised as an inspiration to female economists over the last several years.

Today’s bundle of data and expectations from the Federal Reserve must be considered in light of the extensive turnover in leadership at the Fed expected over the next six months. Current Board of Governors member Jay Powell is expected to receive Senate confirmation to be the next FOMC chairman. Marvin Goodfriend from Carnegie Mellon University has been nominated by President Trump to fill a BOG seat, leaving three other BOG seats open, including the position of Vice Chair. Also, Bill Dudley, President of the Federal Reserve Bank of New York, has announced that he will retire by next summer.

According to the CME Group, the implied odds of a January 31 fed funds rate hike are 15 percent. The cumulative odds of a March 21 fed funds rate hike are higher at 59.1 percent.

Market Reaction: U.S. equity prices climbed through the Fed news. The 10-year Treasury yield decreased after 2 pm eastern time from about 2.38 percent to about 2.35 percent. NYMEX crude oil fell to $56.65/barrel as the dollar eased. Natural gas futures steadied at about to $2.70/mmbtu.

For a PDF version of this report click here: FOMC_12132017.

The articles and opinions in this publication are for general information only, are subject to change, and are not intended to provide specific investment, legal, tax or other advice or recommendations. The information contained herein reflects the thoughts and opinions of the noted authors only, and such information does not necessarily reflect the thoughts and opinions of Comerica or its management team. We are not offering or soliciting any transaction based on this information. We suggest that you consult your attorney, accountant or tax or financial advisor with regard to your situation. Although information has been obtained from sources we believe to be reliable, neither the authors nor Comerica guarantee its accuracy, and such information may be incomplete or condensed. Neither the authors nor Comerica shall be liable for any typographical errors or incorrect data obtained from reliable sources or factual information.

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November Consumer Price Index, December Mortgage Apps

December 13, 2017 by Robert A. Dye, Ph.D., Daniel Sanabria

Gasoline Fuels Consumer Price Inflation

  • The Consumer Price Index for November gained 0.4 percent with higher gasoline prices.
  • Mortgage Applications slipped in early December.

 

Consumer price inflation was fueled by rising gasoline and other petroleum product prices in November. Gasoline prices were up 7.3 percent for the month, and by 16.5 percent over the previous 12 months. According to AAA, the national average regular gasoline price was $2.45 per gallon yesterday, 13 cents above the year ago level. The CPI energy sub-index gained 3.9 percent in November. Food prices were unchanged for the month. Most other components were subdued. Excluding food and energy, core CPI increased by just 0.1 percent in November. Over the previous 12 months, core CPI was up by 1.7 percent in November, about where it has been since last May. Today’s mixed CPI report for November, and a similar Producer Price Index report released yesterday, will give inflation hawks and doves something to talk about. On the one hand, recent headline inflation has warmed up. On the other hand, core inflation metrics remain subdued. We expect the Federal Reserve to stick with its expectation of gradually firming inflation in the monetary policy announcement that will be released this afternoon at 1 p.m. CST. This is a key justification for ongoing gradual interest rate increases, including a rate hike widely expected to be announced today. The Fed’s inflation expectations will be central to monetary policy next year as Jerome Powel takes over as chairman of the Federal Open Market Committee.

Given that the Fed’s inflation expectations will help set the course for the fed funds rate next year, the Fed’s inflation expectations will also influence mortgage interest rates. We look for gradually increasing mortgage rates next year, possibly coming in combination with a reduction of the mortgage interest deduction in the final tax reform bill. Reports yesterday said that Congressional negotiators agreed to cap the mortgage interest deduction at mortgages of up to $750,000 for newly purchased properties, representing a compromise between the House and Senate versions of tax reform. The potential double headwind from increasing mortgage rates and reduced mortgage interest deductions  poses some downside risk for the housing market. Home sales remain relatively subdued at this late stage in the business cycle. According to the Mortgage Bankers Association, the interest rate on a standard 30-year fixed-rate mortgage increased to4.20 percent for the week ending December 8. The composite index for mortgage applications fell in early December as both purchase and refi apps eased. November saw consistent weekly gains in purchase apps, which is a positive sign for November new and existing home sales.

Market Reaction: Equity markets opened with gains. The 10-Year Treasury bond  yield is down  to 2.37 il is down to $57.11/barrel. Natural gas futures are up to $2.71/mmbtu.

For a PDF version of this report click here: CPI_12132017

The articles and opinions in this publication are for general information only, are subject to change, and are not intended to provide specific investment, legal, tax or other advice or recommendations. The information contained herein reflects the thoughts and opinions of the noted authors only, and such information does not necessarily reflect the thoughts and opinions of Comerica or its management team. We are not offering or soliciting any transaction based on this information. We suggest that you consult your attorney, accountant or tax or financial advisor with regard to your situation. Although information has been obtained from sources we believe to be reliable, neither the authors nor Comerica guarantee its accuracy, and such information may be incomplete or condensed. Neither the authors nor Comerica shall be liable for any typographical errors or incorrect data obtained from reliable sources or factual information.

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