What I Saw Last Week

The S&P Case Shiller Index for July met my forecast for an annual increase of 5.8%. interestingly, gains in home prices have largely come from the Pacific Northwest but, seasonally adjusted, 12 of the 20 cities in the composite reported price increases in July.


Seattle, Portland, Oregon, and Las Vegas reported the highest year-over-year gains among the 20 cities.

Interestingly, if you adjust the National Index level for inflation, we are still 12.4% below the pre-bubble peak. This tells me that, although dropping, there are still a substantial number of households who are still “underwater“ and this may explain – to a degree – why listings remain below expected levels.


Consumer Confidence in September dropped to 119.8 in September – I had forecast a drop to 119.4 – from a downwardly revised 120.4 (from 122.9) in August.

The Present Situation Index decreased from 148.4 to 146.1 while the Expectations Index rose from 101.7 to 102.2.


The takeaway from the report is that the downturn was driven mostly by changing attitudes among consumers in the hurricane-ravaged states of Texas and Florida, which manifested themselves in the Present Situation Index. Overall, consumers remained relatively upbeat about the short-term outlook.

U.S. New Home Sales decreased 3.4% month-over-month in August to a seasonally adjusted annual rate of 560,000.  I had forecast an increase to 577,000.

The median sales price for a new home increased 0.4% year-over-year to $300,200.

The available inventory of new homes for sale at the end of August represented a supply of 6.1 months at the current sales rate versus 5.7 months in July, suggesting the new home market has a more balanced supply-demand situation than the existing home market where the available inventory at the end of August stood at a 4.2-months’ supply.

Sales decreased 4.7% in the South, 2.7% in the West, and 2.6% in the Northeast.  Sales were flat in the Midwest.

New sales

The takeaway from the report isn’t that sales declined 4.7% in the South, which was partly impacted by Hurricane Harvey, but that sales declined 2.7% in the West, which wasn’t impacted by Hurricane Harvey, after declining 15.3% in July. The weakness in the West could be a function of constraints related to high prices, yet it will need to be watched closely as a potential harbinger of a broader slowdown in the housing market related to affordability constraints.

The NAR Pending Home Sales Index for August fell 2.6% in August when compared to July. That is the fifth drop in the past six months and below expectations as I had forecast a drop of 0.4%. The Index is now at the same level seen in August of 2016.

Pending Index

The supply and affordability headwinds would have likely held sales growth just a tad above last year, but coupled with the temporary effects from Hurricanes Harvey and Irma, sales in 2017 now appear will fall slightly below last year. The good news is that nearly all of the missed closings for the remainder of the year will likely show up in 2018, with existing sales forecast to rise 6.9 percent.

Regionally, pending home sales in the Northeast fell 4.4% for the month and were 4.1% below a year ago. In the Midwest the index decreased 1.5% for the month and was 3.2% lower than August 2016. Pending home sales in the South fell 3.5% for the month and were 1.7% below last August. In the West sales declined 1% monthly and 2.4% annually.

Income & Spending data for August exactly matched my forecasts with incomes up by 0.2% and spending 0.1% higher.

Real disposable personal income decreased 0.1%, as did real PCE (Personal Consumption Expenditures), which will be a drag on third quarter GDP growth forecasts.  The personal savings rate was unchanged at 3.6%.


The takeaway from the report is that it was more of the same: weak income growth, disappointing spending growth, and continued “lowflation”.

Consumer Sentiment at the end of September dropped to 95.1 from the early month figure of 95.3. I had forecast a rise to 95.4.


Consumers remain confident despite catastrophic storms, deepening political alienation, violent marches and talk of war — things that might otherwise make households cut spending and hunker down for safety — because such events are far from their day-to-day economic lives.

Consumers do have reasons to be optimistic. The economy grew by 3.1% in the second quarter, its fastest pace in nearly two years, and unemployment, estimated at 4.4% , is at historically low levels.

What to Watch for This Week

U.S. Construction Spending is likely to show an increase of 0.5% with the growth driven by residential construction.

All signs point to a disappointing jobs report for September.  My call is for Non-Farm Payrolls to have risen by just 75,000 but the Unemployment Rate should hold at 4.4%.

Consumer Credit  rose by $18.5B in July and the August number should come in at $16B.