It will be interesting to see if Federal Reserve chairman Jerome Powell’s “dovish” remarks on interest rates last week can help turn around a U.S. housing market that continues to show signs of weakness.
As was widely reported, Powell signaled that rates may not move as far or as fast as had been expected, saying they are “just below” estimates of neutral. According to the Financial Times, Powell’s remarks in a speech at the Economic Club of New York included the statement, “There is no preset policy path. We will be paying very close attention to what incoming economic and financial data are telling us.”
Equity markets responded with enthusiasm, with weekly gains for the Dow of 5.2%, 4.8% for the S&P 500, and 5.6% for the NASDAQ Composite.
There can be little doubt that one of the key contributing factors to a soft housing market has been the higher interest-rate path of the Fed over the past year and, prior to last week, expectations for several more increases in 2019.
Mortgage rates have backed off slightly but are still around seven-year highs. According to the Federal Reserve Bank of St. Louis, average 30-year fixed mortgages were at 4.81% last week.
FIGURE 1: U.S. 30-YEAR FIXED-RATE MORTGAGE AVERAGE
Source: Freddie Mac, fred.stlouisfed.org
Two key reports for the U.S. housing market were released last week, and both disappointed.
Barron’s noted of new home sales, which hit a three-year low,
FIGURE 2: NEW U.S. HOME SALES
Sources: Barron’s, Haver Analytics, U.S. Bureau of the Census, U.S. Commerce Department,
and the U.S. Department of Housing and Urban Development.
The second report, on pending home sales, was released a day later, and MarketWatch provided this analysis:
FIGURE 3: PENDING HOME SALES INDEX (MONTH OVER MONTH)
Source: Barron’s, The National Association of Realtors
The National Association of Home Builders released their quarterly Housing Trends Report in November, and this also contained a disappointing outlook for the housing market. Only 13% of their polled respondents in the third quarter of 2018 say they are prospective homebuyers (planning to buy a home within 12 months), versus a level of 24% at the end of 2017.
FIGURE 4: % PLANNING TO BUY A HOME WITHIN 12 MONTHS
Source: National Association of Home Builders, November 2018
Not surprisingly, the shares of homebuilders have had a rough 2018, though the group has bounced off recent lows. Bespoke Investment Group noted last Friday (11/28),
FIGURE 5: S&P 1500 HOMEBUILDER INDEX (LAST 12 MONTHS)
Source: Bespoke Investment Group
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