The Housing Chronicles Blog

Thursday, September 21, 2017

Initial unemployment claims fall 23,000 in latest report, but 4-week average up 6,000

In the week ending September 16, initial unemployment claims were 259,000, a decrease of 23,000 from the previous week's revised level.  The 4-week moving average was 268,750, an increase of 6,000 from the previous week's revised average. This is the highest level for this average since June 4, 2016 when it was 269,500.

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Mortgage applications fall 9.7 percent in latest survey, likely due to storm impacts

The Market Composite Index decreased 9.7 percent on a seasonally adjusted basis from one week earlier, with purchase loans falling 11 percent and refinances down 9 percent. The average contract interest rate for 30-year fixed-rate mortgages increased to 4.04 percent.

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August FHFA House Price Index up 0.2 percent from July and 6.3 percent year-on-year

The FHFA House Price Index (HPI) reported a 0.2 percent increase in U.S. house prices in July from the previous month.  From July 2016 to July 2017, house prices were up 6.3 percent.

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Leading Economic Index rose 0.4 percent in August

The August gain is consistent with continuing growth in the U.S. economy for the second half of the year, which may even see a moderate pick up. While the economic impact of recent hurricanes is not fully reflected in the leading indicators yet, the underlying trends suggest that the current solid pace of growth should continue in the near term.

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Wednesday, September 20, 2017

Federal Reserve leaves interest rates unchanged for now, forecasts another raise this year

The Fed will start cutting its $4.5 trillion balance sheet in October, initially by just $10bn per month. The FOMC also left US interest rates unchanged, at 1.25% to 1.5%, but expects to raise them one more time this year, followed by three raises in 2018.

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August existing home sales dipped 1.7 percent from July, up 0.2 percent year-on-year

Existing-home sales stumbled in August for the fourth time in five months as strained supply levels continue to subdue overall according to the National Association of Realtors®. Sales gains in the Northeast and Midwest were outpaced by declines in the South and West.

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Tuesday, September 19, 2017

August building permits up 5.7 percent from July and 8.3 percent year-on-year

Privately-owned housing units authorized by building permits in August were at a seasonally adjusted annual rate of 1,300,000. This is 5.7 percent above the revised July rate of 1,230,000 and is 8.3 percent above the August 2016 rate of 1,200,000.

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August housing starts down 0.8 percent from July but up 1.4 percent year-on-year

Privately-owned housing starts in August were at a seasonally adjusted annual rate of 1,180,000. This is 0.8 percent below the revised July estimate of 1,190,000, but is 1.4 percent above the August 2016 rate of 1,164,000.

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Monday, September 18, 2017

Builder confidence drops three points in August to 64, largely due to twin hurricane impact

Builder confidence in the market for newly-built single-family homes fell three points to a level of 64 in September from a downwardly revised August reading of 67 on the National Association of Home Builders/Wells Fargo Housing Market Index (HMI), due mostly to concerns about the availability of labor and the cost of building materials.

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Saturday, September 16, 2017

Economic Impact from Hurricanes: Short-Term Pain and Long-Term Lessons Abound

Just before Hurricanes Harvey and Irma landed on the shores of Texas and Florida, the U.S. economy had been gradually picking up steam, with estimates of third-quarter GDP growth rising to nearly 3.0 percent.  However, given the destruction to the Houston area and throughout parts of Florida, a variety of economists and Wall Street analysts have downgraded this estimate by as much as 0.8 percentage points, and the economic impact from the twin hurricanes could exceed $150 billion, including $20 to $40 billion in lost economic output alone.

Given the unique economies of these two areas, the impacts will be national, regional, and/or local in scope.  Nationally, besides the temporary reduction in GDP growth, prices for gas and other petroleum products (such as aviation fuel and heating oil) are expected to remain elevated until Texas’ refining facilities – responsible for nearly 25 percent of the nation’s output – are back online. Auto sales, already weakening this year after years of rising demand, could decline by 100,000 to 200,000 vehicles as potential buyers focus on other issues.  It will also take months for insurers to deal with up to 500,000 claims for flooded cars, many of which were unsold units on dealer lots.

As of mid-September, we’re already seeing some of the impacts from Hurricane Harvey on retail sales and industrial production, both of which dipped after months of increases.  Yet such dips are transitory, and likely to be made up in the fourth quarter and into 2018.  Similarly, initial applications for unemployment insurance, spiking in the first week of September to the highest level since early 2015, will provide a temporary safety net while most companies survey their damage and gradually re-open for business.

As for the housing market, given that the combined areas of the Houston MSA and the State of Florida had accounted for nearly 14 percent of building permits from January through July of 2017, there will certainly be an impact filtering throughout the building industry.  Prices for lumber – already elevated due to the Trump Administration's 20 percent excise tax on Canadian timber – are likely to rise even further given the scale of homes in need of immediate repair.

National spending on remodeling and repair could rise by nearly 10 percent, while also siphoning off labor and materials from new home construction.  Overall inflation, which has been recently bouncing around the two-percent level, could rise in the short term depending on the demand to rebuild and refurnish households.

In Houston, the floods which had inundated as much as 30 percent of Harris County meant that 100,000 homes or more would have to be partially or totally rebuilt, which has created a surge in demand for temporary lodging and suitable rentals.  For now, look for both new home incentives and apartment rent concessions to wane as excess supply disappears.

Given experiences with previous hurricanes, it will likely take up to five years for the hardest-hit areas along the Texas coast to rebuild.  Still, boosters are already saying that the resilience of Houston’s building industry – the largest market in the country with nearly 45,000 permits in 2016 -- could sharply reduce that timeline.

In Florida, because Hurricane Irma impacted almost the entire state, there was more damage to power and water infrastructure as well as homes and businesses.  In terms of economic loss, although the state’s industrial economy is much less built-up than in Houston, other sectors including tourism,  agriculture, health care and business services are expected to take the biggest hit.

In the long run, there will also be a national discussion about re-building in areas prone to natural disasters such Harvey and Irma.  Although many Houstonians can simply elevate their homes to avoid local flooding, the region’s rapid growth (and related ability to provide affordable housing) will be intently studied.  In Florida -- the lowest-lying state with an average elevation of 100 feet – potential homebuyers may have second thoughts about living close to its 1,200 miles of coastline.

For now, Congress will have to shore up and fix the National Flood Insurance Program, already in debt by $25 billion prior to these most recent storms due to premiums not matching payouts for past disasters including Hurricane Katrina and Superstorm Sandy. Some changes might include reducing the 30 percent commission paid to commercial insurers, streamlining the claims process, or even transferring the flood insurance business entirely to the private sector.

Given that lenders will not issue mortgages on homes in flood plains without the required insurance available, the long-term impact to the building industry could be substantial.

Friday, September 15, 2017

Business inventories up 0.2 percent in July

U.S. business inventories rose 0.2% in July, manufacturing inventories were up 0.2% and wholesaler inventories increased 0.6% from a month earlier. Retailers decreased stockpiles by 0.1% in July from June.

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Consumer sentiment dips in early September due to twin hurricanes, but impact likely short-lived

Consumer confidence edged downward in early September due to concerns over the outlook for the national economy. Consumers' assessments of current economic conditions improved, however, with the Current Conditions Index reaching the highest level since November of 2000.

Across all interviews in early September, 9% spontaneously mentioned concerns that Harvey, Irma, or both, would have a negative impact on the overall economy. Renewed gains in incomes as well as rising home and equity values have acted to counterbalance the negative impacts from the hurricanes. Given the current resilience of consumers, recent events are unlikely to derail confidence.

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Industrial production reported August dip, partially due to Hurricane Harvey

Industrial production declined 0.9 percent in August following six consecutive monthly gains. Hurricane Harvey, which hit the Gulf Coast of Texas in late August, is estimated to have reduced the rate of change in total output by roughly 3/4 percentage point.

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August retail sales post largest decline in six months, partly due to Hurricane Harvey

Retail sales dropped 0.2 percent in August, the biggest decline in six months as motor vehicle sales tumbled 1.6 percent. Sales of building materials, electronics and appliances as well as clothing also fell.

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Thursday, September 14, 2017

Initial unemployment claims dip 14,000 in latest survey, but 4-week average up 13,000

In the week ending September 9, initial unemployment claims were 284,000, a decrease of 14,000 from the previous week. The 4-week moving average was 263,250, an increase of 13,000 from the previous week. This is the highest level for this average since August 13, 2016 when it was 263,250.

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