The Housing Chronicles Blog

Thursday, April 19, 2018

Initial unemployment claims dip 1,000 in weekly report

In the week ending April 14, initial unemployment claims were 232,000, a decrease of 1,000 from the previous week's unrevised level of 233,000. The 4-week moving average was 231,250, an increase of
1,250 from the previous week's unrevised average of 230,000.

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Mortgage applications rise 4.9 percent, rates flat

The Market Composite Index increased 4.9 percent on a seasonally adjusted basis from one week earlier, with purchase loans up 6.0 percent and refinances up 4.0 percent. The average contract interest rate for 30-year fixed-rate mortgages remained unchanged at 4.66 percent.

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April Philadelphia Fed's Business Outlook Survey positive, but prices rising

Results from the April Manufacturing Business Outlook Survey suggest continued growth for the region's manufacturing sector. The firms also reported higher prices for both inputs and their own manufactured goods this month. The survey's future indexes, measuring expectations for the next six months, reflected continued optimism.

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March Leading Economic Index up 0.3 percent, but labor market bears watching

The U.S. LEI increased 0.3 percent in March, and while the monthly gain is slower than in previous months, its six-month growth rate increased further and points to continued solid growth in the U.S. economy for the rest of the year.  However, labor market components made negative contributions in March and bear watching in the near future.

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First Quarter Economic Update: Green Shoots Everywhere, but Tariff Impacts Unknown

By almost all measures, the U.S. economy continues to strengthen, for the 3rd-longest recovery of 33 different business cycles since 1854.

As of mid-April, GDP growth is estimated to have risen by 2.0 percent during the first quarter of 2018, but was recently downgraded with concerns about potential trade wars.  This growth rate compares to 2.3 percent in 2017 and 1.5 percent in 2016.

So far this year, inflation is being tamed by regular, planned rate hikes by the Federal Reserve, although the March Producer Price Index showed an annual growth rate of 3.0 percent, which suggests that businesses are facing higher costs before passing them into consumers.

While job growth did dip to 103,000 positions in March, the first quarter’s average of 202,000 is still up by nearly 14 percent from the same period of 2017.

The tax cut taking effect as of January 1st, besides giving an extra boost to corporate spending, has also led to an increase in the personal savings rate of consumers, rising one full percentage point directly before and after the law took effect. 

Not surprisingly, this extra kick in paychecks has sent  consumer sentiment soaring to highs not seen since just after the turn of the 21st century.

This has been, in essence, a Goldilocks economy: Running just hot enough to warrant gradual interest rate hikes to keep it from overheating while still providing consumers both the spending power and the confidence for optional purchases including homes, autos, travel and entertainment.

If there is a concern on the immediate horizon for the building industry, it’s the impact of tariffs on the economy in general, and homebuilding in particular.  Prior to the tariffs of three to 24 percent assessed on Canadian software lumber, new home prices were based more on factors such as location, quality and competition than construction costs alone.

Since then, however, prices have risen sharply, with the pricing premium for new versus existing homes rising to 35 percent, when 10 to 20 percent has been closer to the historical norm.

The cost increase has also had an impact on home prices, as more existing homeowners looking to upgrade stay put until more new home options become available.  More recently, ‘panic buying’ of foreign steel and aluminum to beat additional tariffs was mentioned by an Institute of Supply Management Report, driving up short-term prices and causing inventory shortages for spot buyers.

For their part, home builders are doing everything they can to ramp up production, with March building permits and housing starts up 7.5 and 10.9 percent, respectively, compared to a year ago.

Yet most of these gains were for multi-family homes, pointing to continuing challenges including not just the Canadian tariffs, but also finding suitable land and construction labor. 

In addition, with a recent report noting that average pay in construction is now nearly ten percent higher than for all private employees, these extra costs must either be absorbed by the builder or passed along in the form of higher prices.

Even with higher prices, however, one area in which builders have the upper hand over most existing homes is with green building.  

According to a study by the global consultancy Booz Allen Hamilton, green building was projected to grow at over 15 percent year-over-year from 2015 through 2018, not only outpacing overall construction spending, but also showing a significant impact on GDP, employment and earnings over the previous three-year study period.

More specifically, this growth would support an additional 3.9 million jobs and generate over $303 billion to GDP.

Green building is also a great investment in the future.  According to a report to the California Sustainable Building Task Force, upfront spending of two percent of overall construction costs can, over a structure’s lifetime, yield savings of more than ten times the initial outlay.

For new homes, estimates during the first quarter of 2018 would indicate year-over-year sales activity up by about 0.5 percent, with prices rising by 4.6 percent.

In the larger, existing home sales market, with February’s pending home sales activity falling by just over four percent year-over-year, NAR is adjusting their estimates for 2018 accordingly.  The group is now calling for annual sales to be flat versus 2017, and for home prices to rise by 4.2 percent following a 5.8-percent increase in 2017.

Still, the 4.2 percent growth rate would imply that Americans continue to view owning a home as an important investment, even if tax reform removed some of the benefits.  The homeownership dream lives on.

Wednesday, April 18, 2018

February business inventories up 0.6 percent from January and 4.0 percent year-on-year

February manufacturers' and trade inventories were up 0.6 percent from January 2018 and 4.0 percent year-on-year.  February sales were up 0.4 percent from January 2018 and 5.8 percent year-on-year.

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March industrial production up 0.5 percent from February and 4.3 percent year-on-year

Industrial production rose 0.5 percent in March and is up 4.3 percent year-on-year. Capacity utilization for the industrial sector moved up 0.3 percentage point in March to 78.0 percent, a rate that is 1.8 percentage points below its long-run (1972-2017) average.

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March housing starts rebound 1.9 percent from February and 10.9 percent year-on-year

Privately-owned housing starts in March were at a seasonally adjusted annual rate of 1,319,000. This is 1.9 percent above the revised February estimate of 1,295,000 and is 10.9 percent above the March 2017 rate of 1,189,000.

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March building permits rebound 2.5 percent from February and 7.5 percent year-on-year

Privately-owned housing units authorized by building permits in March were at a seasonally adjusted annual rate of 1,354,000. This is 2.5 percent above the revised February rate of 1,321,000 and is 7.5 percent above the March 2017 rate of 1,260,000.

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Monday, April 16, 2018

February job openings fell 2.8 percent from January, hires and separations fell by a lesser amount

The number of job openings fell by 2.8 percent between the last days of January and February.  Over the month, hires and separations fell by 1.2 and 2.4 percent, respectively.

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Consumer sentiment slips in early April survey due to trade policy concerns

Consumer sentiment slipped in early April, largely reversing the gains recorded in the prior two months, mainly due to concerns about the potential impact of Trump's trade policies on the domestic economy. The small decline was widely shared by all age and income subgroups and across all regions of the country. The expectation of rising interest rates also slowed the anticipated pace of growth in the economy.

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March retail sales rebound 0.6 percent following three straight declines

U.S. retail sales rebounded in March by 0.6 percent after three straight monthly declines as households boosted purchases of motor vehicles and other big-ticket items.

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Builder confidence dips one point to 69 in April, still remains on firm ground

Builder confidence in the market for newly-built single-family homes edged down one point to a level of 69 in April.  The HMI index gauging buyer traffic held steady at 51, the chart measuring sales expectations in the next six months fell a single point to 77, and the component gauging current sales conditions dropped two points to 75.

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Friday, April 13, 2018

Initial unemployment claims decrease 9,000 in weekly report

In the week ending April 7, the advance figure for seasonally adjusted initial claims was 233,000, a decrease of 9,000 from the previous week's unrevised level of 242,000. The 4-week moving average was 230,000, an increase of 1,750 from the previous week's unrevised average of 228,250.

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Mortgage applications decline 1.9 percent in weekly report

The Market Composite Index decreased 1.9 percent on a seasonally adjusted basis from one week earlier, with both purchase and refinances down 2.0 percent. The average contract interest rate for 30-year fixed-rate mortgages with decreased to 4.66 percent from 4.69 percent.

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