What I Saw Last Week
U.S. New Home Sales jumped 6.2% month-over-month in October to a seasonally adjusted annual rate of 685,000 – I had forecast an increase to 680,000 – from a downwardly revised 645,000 (from 667,000) in September.
The current level is the highest seasonally adjusted annual rate of sales seen since October of 2007.
The median sales price rose 3.3% year-over-year to $312,800 while the average sales price soared 13.6% to $400,200. (Of note is that this is the first time the average sale price has broken the $400,000 barrier).
Based on the current sales pace, the inventory of new homes for sale fell to 4.9-months’ supply versus 5.2 months in seen in September and at the same level as seen a year-ago.
The takeaway from the report is that there was sales growth in all regions, led by a huge pickup in sales in the Northeast and the Midwest, underscoring solid demand for new homes.
Consumer Confidence jumped to 129.5 in November (I had forecast 124.0) from an upwardly revised 126.2 (from 125.9) in October. The November reading is the highest seen since November 2000.
The takeaway from the report is that consumers are optimistic about the labor market, but are surprisingly reserved about their short-term income prospects. That is noteworthy because high levels of consumer confidence help consumer spending activity, yet it is income growth that drives consumer spending activity.
The Case Shiller Index rose by 6.2% year -over-year through September – above my call for a 6% increase.
Before seasonal adjustment, the National Index posted a month-over-month gain of 0.4% in September. The 10-City and 20-City Composites reported increases of 0.5% and 0.4%, respectively.
After seasonal adjustment, the National Index recorded a 0.7% month-over-month increase in September. The 10-City and 20-City Composites posted 0.6% and 0.5% month-over-month increases, respectively. 15 of 20 cities reported increases in September before seasonal adjustment, while all 20 cities reported increases after seasonal adjustment.
As can be seen from the chart above, eight of the 20 cities included in this report have now breached their pre-recession high and several more are getting close.
Most economic indicators suggest that home prices can see further gains. Rental rates and home prices are climbing, the rent-to-buy ratio remains stable, the average rate on a 30-year mortgage is still hovering around 4%, and at a 3.8-month supply, the inventory of homes for sale is still low.
The overall economy is growing with the unemployment rate at 4.1%, inflation at 2% and wages rising at 3% or more. One dark cloud for housing, however, is affordability – rising prices mean that some people are being squeezed out of the market.
The second estimate for U.S. GDP in the third quarter showed the national economy expanding by 3.3%, slightly above my call for it to have increased to 3.2% from the previously reported 3.0%.
The upward revision was driven by larger increases than previously estimated for non-residential fixed investment (from 3.9% to 4.7%), state and local government spending (from -0.9% to -0.1%), and private inventory investment (from $35.8B to $39B).
The takeaway from the report is that economic output grew at its strongest pace since the first quarter of 2015, driven by a pickup in both consumer and business spending — and all this despite the disruptions created by the hurricanes.
The NAR Pending Home Sales Index for October jumped 3.5% in October – well above my forecast for a modest 0.6% increase.
Unsurprisingly, sales were strongest in the South, likely a result of pent-up demand after hurricanes hit the southern states over the summer.
The current index level is still 0.6% below that seen a year ago, but is at the highest level seen since June of this year.
Sales were higher in the Northeast by 0.5% monthly, and in the Midwest where they were up by 2.8%. In the West, where prices are highest and inventory is slim, homes experienced a monthly decline of 0.7%. All three regions were lower compared with October of 2016.
The takeaway here is that the number of homes for sale has now decreased every month (on an annual basis) for 29 consecutive months, and the number of homes for sale at the end of October was the lowest for the month since 1999. The housing market remains remarkably tight and that will continue to put upward pressure on home prices.
Income & Spending data showed incomes up by 0.4% (I had forecast 0.3%) and spending matching my forecast for a 0.3% increase.
The PCE (Personal Consumption Expenditures) Price Index was up 0.1%, leaving it up 1.6% year-over-year, versus up 1.7% in September.
On a year-over-year basis, real disposable personal income was up 1.6%, versus 1.1% in September, and real PCE was up 2.6%, unchanged from September.
The takeaway from the report is that it points to the prospect of improved consumer spending and the persistence of low inflation.
Total U. S. Construction Spending rose by 1.4% in October, well above my forecast for a 0.5% increase, after a 0.3% increase in September.
On a year-over-year basis, total construction spending was up 2.9%, with public construction spending up 1.8% and private construction spending up 3.2%.
The October increase was driven by a 3.9% increase in total public construction spending as total private construction spending only rose by 0.6%. Total residential construction spending was up 0.4% in October while total non-residential spending rose 2.1%.
On the public side, non-residential spending increased 4.0%, led by a 10.9% increase in educational spending and a 1.1% increase in highway and street spending.
On the private side, residential spending was up 0.4%, bolstered by a 0.3% increase in new single-family construction. Non-residential spending was up 0.9%, led by a 4.4% increase in office spending and a 1.3% increase in manufacturing spending.
The takeaway from this report is that overall construction spending growth remains modest and remains an inhibitor of stronger real GDP growth.
What to Watch for This Week
Consumer Credit rose by $20.8B in October and I anticipate that the November figure will show a further expansion of $17B.
U.S. Non-Farm Payrolls were up by 261,000 in October and the November figure should show that the economy added an additional 190,000 jobs last month.
Even given the above jobs forecast, I expect to see the Unemployment Rate remain at 4.1%.
Consumer Sentiment in early December should be up from the final November figure of 98.5. Look for a number around 98.8.