The Weekly Economic & Real Estate Forecast – 04/02/18 to 04/06/18

What I Saw Last Week

Case Shiller Index data for January showed the 20-City index up by 6.4%, just above my forecast for an increase of 6.3% year-over-year.

CS5

The cities which reported the highest annual increases include Seattle, Las Vegas and San Francisco with increases of 12.9%, 11.1% and 10.2%, respectively. Twelve of the top 20 cities reported a higher price increase in the year ending January 2018 than the year ending December 2017.

The takeaway here is that there are two factors supporting price increases – the low inventory of homes for sale and the low vacancy rate among owner-occupied housing.  The current months-supply (how many months at the current sales rate would be needed to absorb homes currently for sale) stands at 3.4 while the average since 2000 is 6-months, and the high in July 2010 was 11.9.

Consumer Confidence decreased to 127.7 in March – I had forecast a smaller pull back to 129.5 – from a downwardly revised 130.0 (from 130.8) in February.

Confidence

The takeaway from the report is that, outside of a slight moderation in business expectations, consumers have not reported major changes to their outlook.

The third and final estimate for U.S. GDP in Q4-2017 was revised up to 2.9% from the previously reported 2.5% – I had forecast a smaller increase to 2.6% – as personal consumption expenditures and private inventory investment were both revised higher.

GDP

The takeaway from the report is that it does not change the general picture of economic growth at the end of 2017.

The NAR Pending Home Sales Index for February rose by 3.1% to 107.5 – I had forecast an increase to 107.2.

PHS

The takeaway here is that although home resales surged in February, after two straight months of declines, a chronic shortage of homes remains an obstacle to a more robust housing market. Notably, when compared to the same month a year ago, pending sales are down 4.1%.

Income & Spending exactly met my forecast with incomes up by 0.4% and spending 0.2% higher in February.

I&S

The report showed a modest uptick in the PCE Price Index, which increased 1.8% year-over-year after being up 1.7% year-over-year in January. The core PCE Price Index was up 1.6% year-over-year after three consecutive months of 1.5% year-over-year growth. Real PCE increased less than 0.1%, which should have a negligible impact on Q1 GDP calculations.

The takeaway from the report is that it won’t influence Fed officials to significantly alter the course of monetary policy.

The final Consumer Sentiment number for March declined to 101.4  – I had forecast no change from the earlier reported figure of 102.0.

Sentiment

Uncertainty surrounding the impact of proposed trade tariffs contributed to the modest softening in the Sentiment Index.  The Current Economic Conditions Index pulled back from the preliminary March reading of 122.8 to 121.2, but the final reading still represents a new record.  The Index of Consumer Expectations edged up from 88.6 to 88.8.

The key takeaway from the report is that even after the pullback in the final reading for March, the Sentiment Index remains at its highest level since April 2004.

What to Watch for This Week

Data on U. S. Construction Spending in February should show very modest increase of 0.1% following the zero-growth rate seen the previous month.

Non-Farm Payrolls in March should indicate that the country added 175,000 jobs and the Unemployment Rate  is likely to have dropped to 4.0%.

Consumer Credit rose by $13.9B in January and I expect to see the February number come in at around $15.0B.

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The Weekly Economic & Real Estate Forecast – 03/26/18 to 03/30/18

What I Saw Last Week

U.S. Existing Home Sales rose 3.0% in February to a seasonally adjusted annual rate of 5.54M units.  I had forecast a rise to 5.42M.  Sales are 1.1% higher than seen a year ago.

EHS

The median existing home price for all housing types rose 5.9% to $241,700, the 72nd straight month of year-over-year gains. The median existing single-family home price came in at $243,400, up 5.9% from a year ago.

The inventory of homes for sale at the end of February (1.59 million units) increased 4.6%, but is 8.1% lower than the same period a year ago. Of note is that the inventory of existing homes for sale has fallen year-over-year for 33 consecutive months.

The takeaway from this report remains the same: notable supply constraints continue to act as a drag on overall sales. The limited inventory — and the high prices of available inventory — is crimping affordability, particularly for first-time buyers; moreover, all prospective buyers are going to feel added affordability pressures from rising mortgage rates.

U.S. New Home Sales declined 0.6% month-over-month in February to a seasonally adjusted annual rate of 618,000 – I had forecast 620,000 – from an upwardly revised 622,000 (from 593,000) in January.

NHS

The median sales price rose 9.7% year-over-year to $326,800 while the average sales price increased 15.3% to $376,700.

The takeaway from the report is that, although new home sales declined for the third consecutive month, they are up 0.5% year-over-year. That said, new home starts are still running well below historic levels.

What to Watch for This Week

Case Shiller Index data for January is released on Tuesday and I expect that the 20-City index will have risen by 6.3% year-over-year, matching the number seen in December.

Consumer Confidence in February was measured at 130.8 (its highest level since 2000).  The March data should show a slight pull back to 129.5.

The third and final estimate for U.S. GDP in Q4-2017 isn’t expected to move much from the previously announced growth rate of 2.5%. Look for the economy to have expanded by 2.6%.

The NAR Pending Home Sales Index for February should show a turnaround from the 4.7% contraction seen in January.  My call is for it to have risen from 104.6 to 107.2.

Income & Spending rose by 0.4% and 0.2% respectively in February.  I expect that the March figures will show exactly the same rate of growth.

The final Consumer Sentiment number for March is unlikely to have changed from the initial figure of 102.0.

The Weekly Economic & Real Estate Forecast – 03/19/17 to 03/23/17

What I Saw Last Week

Inflation, as measured by the Consumer Price Index, rose by 0.2% in February with core CPI (which excludes food and energy) also rising by 0.2%.

CPI

Increases in the indexes for shelter, apparel, and motor vehicle insurance contributed to the gain in total CPI. The food index was unchanged while the energy index increased slightly. With the monthly changes, total CPI was up 2.2% for the 12 months ending February, up from 2.1% for the 12 months ending January. Core CPI, meanwhile, was up 1.8%, unchanged from the 12 months ending January.

The takeaway for is that the consumer inflation trend is not accelerating in a worrisome fashion.

U.S. Retail Sales declined 0.1% in February on the heels of an upwardly revised 0.1% decline (from -0.3%) in January. Excluding auto sales, core retail sales rose 0.2% following an upwardly revised 0.1% increase (from 0%) in January.

retail sales

A 0.9% decline in motor vehicle sales weighed on overall retail sales along with a 1.2% decline in gasoline station sales and a 0.4% decline in general merchandise store sales. Building material sales jumped 1.9%. Non-store retailer sales increased 1.0%. The biggest jump in sales, though, was the 2.2% increase logged by sporting goods, hobby, book and music stores.

Core retail sales, which exclude auto, gasoline station, building materials, and food services and drinking places sales, were up a modest 0.1%. This component factors into the computation of the goods component for personal consumption expenditures, so it should help keep Q1 GDP growth estimates in check.

The takeaway from the report for market participants is that it is another data point that should forestall any leaning by the Federal Reserve toward a fourth rate hike this year.

U.S. Housing Starts ran at a seasonally adjusted annual rate of 1.236M units in February versus an upwardly revised 1.329M units (from 1.326M) in January, which was the highest since October 2016.

starts

Single-family starts, where the supply is most needed, rose 2.9% to 902,000 with gains in the South (+4.1%) and the West (+8.8%) — the country’s two largest regions — driving the increase.

The number of units under construction edged higher from January to 1.115M, leaving the first quarter average slightly above the fourth quarter average. That will qualify, then, as a positive input in Q1 GDP growth estimates.

U.S. Building Permits were at a seasonally adjusted annual rate of 1.298M versus a downwardly revised 1.377M (from 1.396M) in January. Single family permits dipped 0.6% to 872,000 while multi-unit permits fell 14.8% to 426,000.

permits

Starts and permits were weaker than expected, yet the takeaway is that there was some underlying detail in the report that helped offset the headline misses, namely the increase in single-family starts and the uptick in the number of units under construction.

Consumer Sentiment in March jumped to 102.0 from 99.7 in February. The March reading is the highest level for the index since April 2004.

sentiment

Income expectations among the top-third income households fell more and inflation expectations rose more, which could possibly be a setup for continued sluggishness in consumer spending, according to the report, since top-third households drive more than half of all consumption expenditures.

The takeaway from the report is that the gain in the Sentiment Index was driven entirely by households with incomes in the bottom third. Another notable takeaway is that near-term inflation expectations increased to their highest level in several years.

What to Watch for This Week

U.S. Existing Home Sales dropped 3.2% in January to a seasonally adjusted annual rate of 5.38M. I expect to see a modest bump in the February number to 5.42M units.

U.S. New Home Sales dropped by 7.8% in January to an annual rate of 593,000 units. I think that we will see a pretty substantial upward move to an annual rate of 620,000 when the data is released on Friday.

The Weekly Economic & Real Estate Forecast – 12/18/17 to 12/22/17

What I Saw Last Week

Inflation, as measured by the Consumer Price Index, exactly met my forecast for a 0.4% increase while core CPI (ex-food and energy) rose by 0.1% (I had forecast 0.2%).

CPI

The energy index increased 3.9% and accounted for about three-fourths of the increase in total CPI.

A 0.2% increase in the shelter index helped push up core CPI, but declines in the indexes for apparel, airline fares, and household furnishings helped keep core price pressures in check.

On a year-over-year basis, total CPI was up 2.2%, versus 2.0% for the 12 months ending in October. Core CPI, however, decelerated to 1.7% from 1.8% for the 12 months ending in October.

The takeaway from the report is that it didn’t signal any alarming consumer inflation pressures, which will leave market participants predisposed to think that the Federal Reserve is apt to continue following a gradual tightening path.

The Federal Reserve met last week and, as expected, raised the Fed Funds Rate by a quarter point.

One of the more notable developments came from the expectations Federal Open Market Committee members set for gross domestic product next year as they collectively raised their GDP estimate from 2.1% percent in September to 2.5%.

U.S. Retail Sales rose by 0.8% in November – well above my call for a 0.3% increase – on top of an upwardly revised 0.5% increase (from +0.2%) in October. Core sales (ex-auto) rose by 1% (above my forecast for a 0.6% increase) on top of an upwardly revised 0.4% increase (from +0.1%) for October.

Retail sales

Core retail sales, which exclude auto, building material, gasoline station, and food services sales, increased 0.8%, which will be a positive (and upbeat) input for Q-4 GDP forecasts.

The retail sales strength was widespread, led by sales increases at gasoline stations (+2.8%) and non-store retailers (+2.5%). The only pocket of weakness was motor vehicle and parts dealers’ sales (-0.2%).

The takeaway from the report is that there was healthy spending activity across discretionary categories, which is consistent with a consumer feeling pretty good about their income prospects.

What to Watch for This Week

The NAHB Housing Market Index came in at 70 in November and the December figure is likely to remain unchanged.

U.S. Building Permits and Housing Starts both rose in October and the November figures will show a pullback with permits coming in at 1.28M (from 1.297M) and starts dropping to 1.259M (from 1.29M).

U.S. Existing Home Sales in October were measured at an annual rate of 5.48M units. The November data should show sales rising to an annual rate of 5.56M units.

The third and final estimate for GDP in Q-3 will show that the U.S. economy grew by 3.3% – unchanged from the last estimate.

Income & Spending were both higher in October and the November numbers should show both up by 0.4%.

U.S. New Home Sales in November will likely be a drop from the annual rate of 685,000 units seen in October. Look for sales to come in at an annual rate of 652,000 units.

The final Consumer Sentiment figure for December will be up from the early moth number of 96.8. My call is for 97.3.

This will be the last forecast for 2017 – I hope that you have enjoyed reading my thoughts.

I wish you all a very merry Christmas and hope that 2018 is all you wish is to be.

The Weekly Economic & Real Estate Forecast – 12/11/17 to 12/15/17

What I Saw Last Week

Consumer Credit rose by $20.5B in October – I had forecast $17B – after increasing a downwardly revised $19.2B (from $20.8B) in September.

Credit

The growth in October was driven by non-revolving credit, which was up $12.2B from September to $2.791T. Revolving credit increased by $8.3B to $1.012T.

Consumer credit increased at a seasonally adjusted annual rate of 6.5% in October, with revolving credit increasing at an annual rate of 10% and non-revolving credit increasing at an annual rate of 5.25%.

The takeaway here is that October saw the largest increase in consumer credit since November 2016.

U.S. Non-Farm Payrolls in November rose by 228,000 (I had forecast 190,000). Over the past three months, job gains have averaged 170,000 per month. October payrolls were revised down to 244,000 from 261,000 while September payrolls were revised up to 38,000 from 18,000.

Payrolls

November private sector payrolls increased by 221,000 with October private sector payrolls revised down to 247,000 from 252,000 and September private sector payrolls revised up to 50,000 from 15,000.

The takeaway here is that the job market continues to grow, but at a more modest rate than seen in 2016 with employment growth averaging 174,000 per month year-to-date, compared with average monthly growth of 187,000 for all of 2016.

The Unemployment Rate in November met my forecast and remained at 4.1%.

U Rate

Persons unemployed for 27 weeks or more accounted for 23.8% of the unemployed versus 24.8% in October. The U-6 unemployment rate, which accounts for both unemployed and underemployed workers, rose by a tenth to 8.0% versus 7.9% in October.

The takeaway here is that the current unemployment rate is at its lowest level since 2000.

Consumer Sentiment in early December came in at 96.8 – I had forecast 98.8 – down slightly from the final November reading of 98.5.

Sentiment

The Current Economic Conditions Index increased from 113.5 to 115.9 while the Index of Consumer Expectations slipped from 88.9 to 84.6.

The takeaway from the report is that consumers continue to remain upbeat about current economic conditions, with higher income expectations feeding their optimism. As an aside, there was also a jump in consumers’ inflation expectations for 2018.

 

What to Watch for This Week

Inflation, as measured by the Consumer Price Index, has really been a non-factor so far this year but I anticipate that it might have kicked up a bit in November with the total rate up by 0.4% and the core rate up by 0.2%.

The Federal Reserve meets this week and I can almost guarantee that they will raise the Fed Funds Rate by a quarter point.

U.S. Retail Sales growth in November should be an improvement over October with total sales up by 0.3% and core sales (ex-auto) up by 0.6%.

The Weekly Economic & Real Estate Forecast – 12/04/17 to 12/08/17

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.

New Sales

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.

Confidence

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.

case shiller

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%.

GDP

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.

Pending Sales

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.

Income & Spending

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.

Construction Spending

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.

The Weekly Economic & Real Estate Forecast – 11/27/17 to 12/01/17

What I Saw Last Week

U.S. Existing Home Sales increased 2.0% month-over-month in October to a seasonally adjusted annual rate of 5.48M units (I had forecast an increase to 5.42M units) versus a downwardly revised 5.37M (from 5.39M) in September. The October sales pace is the strongest since June; however, it is still 0.9% below the level seen a year ago.

Confidence

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The median existing home price for all housing types increased 5.5% to $247,000, which was the 68th straight month of year-over-year gains. The median existing single-family home price was measured at $248,300, up 5.4% from a year ago.

The inventory of homes for sale at the end of October (1.80M units) dropped 3.8% and is 10.4% lower than the same period a year ago. It is notable that the inventory of existing homes for sale has fallen year-over-year for 29 consecutive months.

Unsold inventory is at a 3.9-month supply at the current sales pace, versus 4.4 months a year ago and well below the 6.0-month supply typically associated with a more balanced market.

First-time buyers were 32% of sales in October, up from 29% in September but down from 33% a year ago, while all-cash sales were 20% of transactions, unchanged from September but down from 22% a year ago.

My 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.

The final Consumer Sentiment number for November was revised to 98.5 from the early month figure of 97.8 – my call was for it to rise to 97.9.

Sentiment

The upward revision was a byproduct of an upward adjustment in the reading for the expectations index which rose from 87.6 to 88.9.

The takeaway from the report is that consumers are feeling more confident in their expectations for income, employment, and inflation, which could bode well for future spending activity.

What to Watch for This Week

U.S. New Home Sales in September were measured at an annual pace of 667,000.  The October figure should come in a little stronger with the annual rate up to 680,000.

The 20-City Case Shiller Index rose by 5.9% year -over-year through August and the September number is likely to show prices up by 6%.

Consumer Confidence in October came in at 125.9 – its highest reading since December 2000 – and the November number will likely be a little softer. Look for a figure of around 124.0.

The second estimate for U.S. GDP in the third quarter should show the national economy expanding by 3.2%, up from the initial figure of 3%.

The NAR Pending Home Sales Index for October will show slight improvement with the index higher by 0.6%.

Income & Spending rose by 0.4% and 1.0% respectively in September and the October figures will show both incomes and spending higher by 0.3%.

U. S. Construction Spending rose by 0.3% in September and the October figure should show further expansion of 0.5%.

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