The Housing Chronicles Blog

Tuesday, August 14, 2018

Total household debt rose another 0.6 percent to all-time high, delinquency rates stable at low levels

Total household debt increased by $82 billion (0.6%) to $13.29 trillion in the second quarter of 2018. It was the 16th consecutive quarter with an increase, and the total is now $618 billion higher than the previous peak of $12.68 trillion, from the third quarter of 2008. Further, overall household debt is now 19.2% above the post-financial-crisis trough reached during the second quarter of 2013.

While overall delinquency rates have remained stable at relatively low levels, transition rates into delinquency have fallen noticeably for student debt over the past year, reflecting an improved labor market and increased participation in various income-driven repayment plans.


July Small Business Optimism Index rose to second-highest level in 45-year history

The Small Business Optimism Index marked its second highest level in the survey’s 45-year history at 107.9, rising to within 0.1 point of the July 1983 record-high of 108. The July 2018 report also set new records in terms of owners reporting job creation plans and those with job openings.

A seasonally adjusted net 23 percent are planning to create new jobs, up three points from June. Thirty-seven percent of all owners reported job openings they could not fill in the current period, a one-point increase from June.


Friday, August 10, 2018

Second Quarter 2018 Economic Update: The Strongest Growth since 2014, But Will it Last?

It was certainly good news to hear that the initial estimate for GDP growth of 4.1 percent in the second quarter of 2018 was the fastest since the third quarter of 2014. This recent rate of growth compares to 2.2 percent in the first quarter of 2018, 2.3 percent in 2017 and 1.5 percent in 2016. As of early August, GDPNow was also forecasting third quarter growth of 4.3 percent, although both these GDP estimates and forecasts are likely to change as more information comes in.

Most of the surge noted during the second quarter was due to a boost in consumer spending (along with the highest levels of consumer confidence in years), exports, nonresidential fixed investment (including commercial real estate, factories and machinery) and government spending. It would have been even higher were it not for declines in private inventory investment by businesses and residential fixed investment (including home building and remodeling).

One political factor weighing heavily on the boost in growth was the export of goods, with its rise quadrupling from the first quarter to 13.3 percent, as numerous countries stocked up in advance in order to avoid real and potential retaliatory tariffs.   This export surge itself was responsible for about one full point of the 4.1-percent GDP increase. At the same time, the rate of import growth fell sharply to just 0.5 percent, indicating that domestic suppliers either had adequate inventories or capacity to meet demand.

Another political factor was the tax cuts enacted at the beginning of 2018, which boosted consumer spending after a lag in the first quarter, and led to large corporations buying hundreds of billions of their own shares, thus helping to support the stock market. A healthy stock market, in turn, improves both 401k balances as well as consumer confidence.

What we don’t know yet is if the export surge or the boost in consumer spending is sustainable, but we’ll find that out through the rest of the year.

For now, the job market remains tight, with July unemployment dipping back to 3.9 percent along with 157,000 new positions. Looking at just the second quarter of 2018 alone, job growth rose by over 21 percent versus the same quarter of 2017. Moreover, for the first seven months of 2018, job growth increased by over 16 percent versus 2017.

Wages, which had remained stubbornly flat throughout much of the economic recovery, surged during the second quarter of 2018 by 2.8 percent over the previous year, for the sharpest increase since the third quarter of 2008.

Still, with inflation slowly on the rise, most of these wage gains are being eaten up by higher costs for energy, transportation and shelter. Annual core inflation readings from the CPI, PPI and PCE Price Index have recently ranged from 1.9 to 2.8 percent versus the Fed’s preferred increase of 2.0 percent. It’s for that reason that we’re likely to see a total of four interest rate increases by the Fed this year, and up to three more in 2019.

For the housing market, although home builders continue to push forward on meeting demand, they’re up against several headwinds including higher mortgage rates (up 18 percent annually through the first week of August), higher building costs (especially tariffs on Canadian timber) and ongoing difficulties locating suitable land and labor.

Although average monthly housing starts and building permits did fall by a small amount between the first and second quarters of 2018, they were still up moderately for the first half of the year versus 2017. New single-family home sales, which averaged an annual rate of 646,000 in the second quarter of 2018, were also up 6.4 percent for the first half of the 2018 versus 2017.

The pricing premium for new versus existing homes, which approached 40 percent as recently as the end of 2017, steadily fell to just nine percent by June of 2018, thus making a new home much more competitive. In fact, forecasters are pointing to the new home market to drive the housing market in the near term, as the existing home market remains penned in by low inventory, increasing affordability issues and higher interest rates.

Still, with the backlog of unsold new single-family homes rising to 5.7 months in June, some builders are also facing similar affordability challenges with their buyers. In the long run, however, given the huge pent-up demand for housing in the U.S., only the most serious shocks to the economy are likely to derail the long and slow recovery.

July CPI up 0.2 percent from June and 2.9 percent year-on-year

The July CPI rose 2.9% year-on-year, largely due to energy (+12.1%), transport (+4.0%) and shelter (+3.5%).  The 'core' index rose 2.4% year-on-year, for the highest increase in nearly 10 years.


Thursday, August 9, 2018

Initial unemployment claims dip 6,000 in weekly report

In the week ending August 4, initial unemployment claims were 213,000, a decrease of 6,000 from the previous week's revised level. The 4-week moving average was 214,250, a decrease of 500 from
the previous week's revised average.


Mortgage applications dip to lowest level in 2.5 years, rates remain unchanged

The Market Composite Index decreased 3.0 percent on a seasonally adjusted basis from one week earlier to its lowest level since January 2016, with purchase loans falling 2.0 percent and refinance activity down 5.0 percent. The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances remained unchanged at 4.84 percent.


Bloomberg: Consumer comfort index rises to 17-year high of 59.3 in weekly update

U.S. consumer sentiment advanced to a 17-year high of 59.3, elevated by rosier views of the economy and personal finances.  This is the highest level noted since February 2001.


June wholesale trade sales slipped 0.1 percent from May but up 10.2 percent year-on-year

June 2018 sales of merchant wholesalers were down 0.1 percent from May but up 10.2 percent year-on-year. Inventories were up 0.1 percent from May and 5.1 percent year-on-year.


July Producer Price Index unchanged from June, up 3.3 percent year-on-year

The Producer Price Index for final demand was unchanged in July, seasonally adjusted, and rose 3.3 percent year-on-year. The index for final demand less foods, energy, and trade services moved up 0.3 percent in July, and was up 2.8 percent year-on-year.


Wednesday, August 8, 2018

Consumer borrowing growth slowed in June as revolving credit use declined

Consumer borrowing slowed in June after hitting a six-month high in the prior month, but still rose at an annual rate of 3.1 percent.  Revolving credit, including credit cards, declined by 0.2% in June after rising 11.2% in May. This is the second drop in credit-card use in the past four months. Nonrevolving credit, including auto and student loans, rose 4.4% in June, and has been rising at a relatively steady pace in recent months.


July new home mortgage applications up 0.2 percent from June and 3.6 percent year-on-year

July mortgage applications for new home purchases increased 0.2 percent from June and 3.6 percent year-on-year.  MBA estimates new single-family home sales were running at a seasonally-adjusted
annual rate of 637,000 units in July 2018, up 8.5 percent from June.


Tuesday, August 7, 2018

July Employment Trends Index up 5.4 percent year-on-year

The Conference Board Employment Trends Index™ (ETI) increased in July, after increasing in June. The index now stands at 109.89, up from 108.72 in June. The change represents a 5.4 percent gain in the ETI compared to a year ago.

CoreLogic: June home prices up 0.7 percent from May and 6.8 percent year-on-year

CoregLogic:  June home prices increased nationally by 0.7 percent from May and 6.8 percent year over year. Looking ahead, the CoreLogic HPI Forecast indicates that the national home-price index is projected to continue to increase by 5.1 percent over the next year.


JOLTS: June job openings rose 0.5 percent as surplus of open positions remains

Although overall job openings were nearly flat between the final days of May and June (rising by 0.5 percent to 6.7 million), hires fell 1.67 percent while separations rose 1.53 percent. With 6.6 million unemployed persons in June (falling to 6.3 million in July), there still likely remains a surplus of open positions.


Friday, August 3, 2018

Service sector index dips 3.4 points in July to 55.7

The NMI® registered 55.7 percent in July, which is 3.4 percentage points lower than the June reading of 59.1 percent. There has been a ‘cooling off’ in growth for the non-manufacturing sector, and tariffs and deliveries are an ongoing concern. Still, the majority of respondents remain positive about business conditions and the economy.