What I Saw Last Week

The NAHB Housing Market Index matched my forecast for a drop to 64 as builders struggled with costs which have been intensified by the recent hurricanes and their effect on labor and materials.


All three of the index’s components reported losses in April but are maintaining healthy levels. The components gauging current sales conditions fell three points to 74, while the index charting sales expectations over the next six months dropped three points to 75. Lastly, the component measuring buyer traffic fell one point to 52.

That said, even with this month’s modest drop, builder confidence is on very firm ground, and builders are reporting strong interest among potential home buyers.

As I had anticipated, U.S. Housing Starts and Building Permits were a mixed bag with starts down but permits up – the only issue is that I had it back to front!

Building permits jumped 5.7% to a seasonally adjusted annual rate of 1.3M from an upwardly revised 1.230M for July (from 1.223M ). I had forecast a pullback to 1.223M.


The strength in permits – now at a 7-month high – was due to multi-family permits which rose by 19.6%. Single-family permits declined 1.5%. Clearly, we remain heavily influenced by apartment construction.

These mixed readings suggested housing could remain a drag on economic growth in the third quarter. Homebuilding has been treading water for much of this year amid shortages of land and skilled labor as well as rising costs of building materials.

Housing starts in August dropped 0.8% month-over-month to a seasonally adjusted annual rate of 1.18M – I had forecast a drop to 1.17M units.


Interestingly, a 1.6% increase in single-family starts helped offset a 6.5% decline in multi-unit starts.

Single-family starts declined 1.5% in the Northeast and 4.3% in the Midwest. Single-family starts were up 1.3% in the South and up 6.5% in the West.

The number of total housing units under construction at the end of August was 1.082 million. That left the second quarter average at 1.075M versus 1.07M for the first quarter.

The takeaway from the report is that the pace of single-family starts isn’t quick enough to alleviate the supply pressures in the housing market that are crimping affordability for prospective homeowners and that isn’t expected to improve next month either when the force of the impact from Hurricanes Harvey and Irma weighs on housing starts activity. I believe that construction activity could slump further in September in the aftermath of Harvey and Irma, which struck Florida. According to Census Bureau data, the areas in Texas and Florida that were devastated by the storms accounted for about 13 percent of permits issued in the nation last year.

U.S. Existing Home Sales declined 1.7% month-over-month in August to a seasonally adjusted annual rate of 5.35M units. I had forecast a smaller drop to 5.42M.

Existing sales

The August sales pace was 0.2% above a year ago, but marked the lowest pace of sales in 2017 thanks, in part, to Hurricane Harvey interrupting closings in the South.

The median existing home price for all housing types increased 5.6% to $253,500, which was the 66th straight month of year-over-year gains. The median existing single-family home price was $255,500, up 5.6% from a year ago.

Existing sales $.jpg

The inventory of homes for sale at the end of August (1.88M ) is 6.5% lower than the same period a year ago and has fallen year-over-year for 27 consecutive months. Unsold inventory is at a 4.2-month supply at the current sales pace, versus 4.5 months a year ago and the 6.0-month supply typically associated with a more balanced market.

The takeaway from the report is that notable supply constraints remain, which will continue to act as a drag on overall sales due to the limited inventory and the high prices on available inventory that is crimping affordability.

As I had anticipated, the Federal Reserve decided not to raise the key federal funds rate but did decide to start to roll off its $4.5T balance sheet starting in October.   Most of those assets consist of the Treasurys and mortgage-backed securities it acquired under a program known as quantitative easing.

In their quarterly economic projections, Federal Open Market Committee members now forecast economic growth to run a bit stronger than before. The committee’s expectations back in June were for a 2.1% GDP gain this year, but that was pushed to 2.2% in the latest projections. The long-run outlook for GDP remained at 1.8%.

What to Watch for This Week

The S&P Case Shiller Index for July is likely to show prices for the 20-city Index up at an annual rate of 5.8%.

Consumer Confidence in September should come in at 119.4 – down from a reading of 122.9 in August.

U.S. New Home Sales were running at an annual rate of 571,000 units in July and the August data will likely show marginal improvement. Look for a number of around 577,000.

The NAR Pending Home Sales Index for August should drop a little more following the 0.8% contraction seen in July. MY call is for a drop of 0.4%.

Income & Spending were both higher in July and this trend should continue. Look for incomes to be up by 0.2% and spending higher by 0.1%.

Consumer Sentiment in early September was measured at 95.3. Look for the final September figure to have risen marginally to 95.4.