Dec 29, 2017 3:37 PM ET
There were several interesting developments with relevance to the housing market last week. Rather than let important information fall by the wayside amid the holiday season, this week’s newsletter will largely be a reprint of last week’s. Interest rate discussion is updated to reflect this week’s changes, as is the calendar of economic reports and the list of additional news stories. In order to see the economic calendar or news links in the previous newsletter, you can view it directly.
The tax bill that has been at the center of discussion for the Housing Market was officially signed into law last week. In the days leading up to that, both New and Existing Home Sales surged to post-crisis records. Can the new tax policies coexist with a strong housing market?
In a word: yes. While there were some provisions in earlier drafts of the tax bill that would have made this question harder to answer, they didn’t make the final cut. Specifically:
All in all, this is a storm that the housing market can weather. It’s ability to do so was only reinforced by EXCEPTIONALLY strong sales figures this week. New Home Sales stood out as the biggest winner, rising a whopping 17.5 percent in November. This isn’t merely good in the “post-crisis” context. It puts New Home Sales back in a “high average” historical range.
Existing Home Sales may not have surged quite as much as New Home Sales, but they too hit post-crisis highs. Moreover, they’re in a much stronger spot in the context of the historical trend. The chart below shows plenty of room to weather any effects from new tax policy without exiting a healthy growth trend.
Construction metrics (Housing Starts and Building Permits) weren’t quite as balmy as the sales data, but positive trends remained decisively intact.
With respectable construction activity and home sales booming, it’s no surprise to see builder confidence also exploring a new post-crisis high. In fact, more than any of the week’s other housing-related reports, the NAHB Housing Market Index did the most to return near all-time highs. This should be taken with a grain of salt, however, due to the nature of survey data, which tends to oscillate in a steadier range when compared to something like outright sales counts.
Other than the uncertainties surrounding the tax bill, the only other cloud on last week’s horizon was a fairly abrupt increase in mortgage rates. This resulted from the uncommonly light trading environment that exists at the end of December (and NOT from the tax bill).
The yield curve (the spread between longer and shorter-term rates, such as 10yr and 2yr Treasury yields) has been a key consideration for traders in 2017. Last week’s rate spike was immediately preceded by a bounce at a post-crisis record low for the 2yr vs 10yr yield curve.
“Uncommonly light trading environments” work both ways, thankfully, simply because they amplify the effects of imbalances (rates move more than they otherwise would). This week, the imbalance was in our favor. The yield curve returned to those long-term lows and rates followed. As such, we’re set to begin January with rates well-within their range from Q3-2017.
|Tuesday, Dec 26|
|9:00||CaseShiller 20 yy (% )||Oct||6.4||6.3||6.2|
|9:00||CaseShiller 20 mm nsa (%)||Oct||0.2||0.4||0.4|
|Wednesday, Dec 27|
|10:00||Pending Home Sales (%)||Nov||0.2||-0.4||3.5|
|10:00||Pending Sales Index||Nov||109.5||109.3|
|Thursday, Dec 28|
|8:30||Jobless Claims (k)||w/e||245||240||245|
|Wednesday, Jan 03|
|10:00||ISM Manufacturing PMI||Dec||58.2||58.2|
|Thursday, Jan 04|
|8:15||ADP National Employment (k)||Dec||190|
|8:30||Jobless Claims (k)||w/e||240||245|
|Friday, Jan 05|
|8:30||Non-farm payrolls (k)||Dec||187||228|
|8:30||Unemployment rate mm (%)||Dec||4.1||4.1|
|10:00||ISM N-Mfg PMI||Dec||57.6||57.4|
|10:00||Factory orders mm (%)||Nov||1.4||-0.1|
No Stars = Insignificant | Low | Moderate | Important | Very Important
Michael Ayoub, Author NMLS ID 6631