What I Saw Last Week

Case Shiller Index data for July showed the 20-City Index up by 5.9% year-over-year – down from an annual growth rate of 6.4% in June.


Home prices are still rising, but the pace of the gains continues to slow, as potential homebuyers hit an affordability wall and sellers cave to a new reality.

It is clear that rising homes prices are beginning to catch up with the market.  Sales of existing single-family homes have dropped each month for the last six months and are now at the same level as seen in July of 2016. Notably, housing affordability has worsened substantially since the start of the year.

Las Vegas, Seattle and San Francisco continue to see the biggest annual gains in home prices, with increases of 13.7% , 12.1% and 10.8% respectively. Five of the 20 cities saw home price gains accelerate annually compared with June.

While it is clear that demand for housing is still strong, a continued shortage of for-sale listings has overheated prices throughout much of the past year, and buyers are now starting to step back.  This has led home sellers to reassess values with more than one-quarter of sellers in early September reducing their list prices. Homes are sitting on the market longer, and sales continue to slow, especially in some of the previously hottest markets in Southern California.

The takeaway from this report is that price growth is likely to taper for the balance of the year as many markets hit an affordability ceiling.

Consumer Confidence rose to 138.4 in September from an upwardly revised 134.7 (from 133.4) in August. The September reading is the highest since September 2000.


The Present Situation Index increased from 172.8 to 173.1 while the Expectations Index surged from 109.3 to 115.3.

The takeaway from the report is that the high level of consumer confidence, fueled by an uptick in expectations, creates a good backdrop for healthy consumer spending activity that is the driver of GDP growth. Notably, we are getting closer to the all-time index high of 144.7 which was seen in May of 2000.

U.S. New Home Sales in August rose 3.5% to a seasonally adjusted annual rate of 629,000 units from a downwardly revised 608,000 (from 627,000) in July.


New home sales in the South dropped 1.7% month-over-month to 350,000 units and that is noteworthy because the South is the largest market for new home sales in the U.S.  On the other end of the spectrum, sales in the Northeast surged 47.8% to 34,000, rose 2.7% in the Midwest to 77,000, and jumped 9.1% in the West to 168,000 units.

The takeaway from the report is that it reflects the affordability constraints that are increasing on the back of high prices and rising mortgage rates. To wit, the median sales price was up 1.9% year-over-year to $320,200 and the supply of new homes for sale stood at a 6.1-months’ supply at the August sales pace versus 6.0 months a year ago.

The third and final estimate for U.S. GDP in the second quarter was unchanged from the second read, coming in at 4.2%.


The takeaway from the report is that it showed no change in personal spending growth (3.8%) from the second estimate. I still expect to see a marked slowdown when the third quarter numbers are released as the specter of tariffs pulled growth forward. 

The NAR Pending Home Sales Index in August fell 1.8%month-over-month and are down by 2.3% year-over year.


The August figure represents the fourth month of declines in the past five months, and the slowest sales pace since January of this year.

With both home prices and mortgage rates continuing to rise, fewer consumers signed contracts to buy existing homes in August. Sales have been hampered all year by a very lean supply of affordable listings. Inventories did rise slightly in August, but there is still precious little supply at the entry level – which is where most of the demand is.

The greatest decline occurred in the West region where prices have shot up significantly, which clearly indicates that affordability is hindering buyers and those affordability issues come from lack of inventory, particularly in moderate price points.

Pending home sales dropped 5.9% in the West month-over-month and were down a striking 11.3% when compared to August 2017. Prices in the West, however, are still higher than a year ago, but the gains are shrinking. Prices usually lag sales.

Sales fell 1.3% in the Northeast monthly and were down 1.6% annually. In the Midwest, sales fell 0.5% monthly and 1.1% annually. In the South, sales were down 0.7% monthly but were 1.3% higher than a year ago.

The takeaway here is that a record high number of Americans believe now is a good time to sell and I expect to see substantially more inventory start to come to market as potential sellers are considering that now is a good time to list and bring more properties to the market. This, in turn, will further slow home price growth.

Income & Spending in August both rose with incomes and spending both rising by 0.3%.


The growth in income was led by a 0.8% increase in rental income, a 0.5% increase in wages and salaries, and a 0.4% increase in personal current transfer receipts.

The takeaway from the report is that the year-over-year increase in the PCE (Personal Consumption Expenditures) Price Index (+2.2% vs. +2.3% prior) and the core PCE Price Index (+2.0% vs. +2.0% prior) will keep the Federal Reserve on its tightening path.

The early Consumer Sentiment number for September hit 100.8 – the second highest level since 2004.


The Index of Consumer Expectations rose to 91.1 from 87.1 in August, hitting its highest level since July 2004 while the Current Economic Conditions Index increased to 116.1 from 110.3.

The takeaway from the report is that the pickup in sentiment was widespread across all major socioeconomic groups, which is a good underpinning for solid consumer spending activity.

What to Watch for This Week

U.S. Construction Spending rose by 0.1% in August and I am looking for some improvement in the September data with an increase of 0.4%.

Non-Farm Payrolls were up by 201,000 in August and the September figure should drop a little to a still respectable 184,000.  With this growth, the Unemployment Rate should drop to 3.8% from the current level of 3.9%.