11|29|2016

Housing vs Economy

Markets surged to all-time highs this past Friday. A surge that could be short lived…

Economic data across much the week supported market performance. This also continued to firm the case of a Federal Reserve Board (FRB) rate hike at the meeting December 13-14.

OIL
This coming week brings an all-important OPEC meeting. All eyes will be watching to see if they will actual apply caps to production. Iran and Iraq are the major holdouts. They both are refusing to cut production. Iran recently came back online so cutting production is counter to their recent ramp up.

REAL ESTATE
Existing home sales increased by 2.0% while new home sales fell by 1.9%. Everything is relative… 1.9% of new home sales represents a pullback of 11,000 homes. A 2% increase on existing home sales represents an increase of 110,000 homes[1]. The more damning data out of the housing market would be mortgage rates. Since the end of September, a 30-year fixed mortgage has increased from 3.62% to 4.16%[2]. A half of a percentage point increase does not sound like much, but may be enough to thin the buyer market and slow price appreciation.

US DATA
Data and consumer gauges support further growth in our economy[3]:

  • Durable goods, 4.8% (Oct)
  • Manufacturing PMI, 53.9 (Nov)
  • Services PMI, 54.7 (Nov)
  • Michigan Consumer Sentiment, 93.8 (Nov)

Durable goods orders speak to corporate spending and their willingness to invest in their businesses for the long run.

PMI data is strong as indicators have moved well into expansionary territory (over 50 represents expansion, while under 50 represent contraction).

Sentiment strengthening at the start of a key consumer season such as the holidays could prove to make for a strong 4th quarter GDP.

Conclusion
In the end, the housing market historically makes up a meaningful part of economic growth. It is not a battle between the two, but a rather a battle for the two. Rates should stabilize if not slightly retreat. The buyer is still strong with historically low rates that should still produce a strong spring for not only real estate, but for small businesses that have continued low rates to look forward to and renewed hope for economic expansion.

 

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Any and all third-party posts or responses to this blog do not reflect the views of the firm and have not been reviewed by the firm for completeness or accuracy.

 

[1] www.investing.com – economic calendar

[2] www.jpmorganfunds.com – weekly market recap

[3] www.investing.com – economic calendar