Monday Update (on Tuesday): Housing Surprises to the Upside

Posted by Brad McMillan, CFA, CAIA, MAI

Find me on:

This entry was posted on Dec 26, 2017 10:00:00 AM

and tagged In the News

Leave a comment

Monday updateLast week was very positive for the housing sector, with both consumers and builders showing surprisingly high levels of confidence and activity. But the week ended with a cautionary note for business investment. As that has been a particularly strong story recently, it warrants attention. Overall, however, the news was good as we end the year.

Last week’s news

The week started with a burst of housing data. On Monday, the National Association of Home Builders survey for December came in at 74. This was well above the November level of 70, which itself was an eight-month high. Developers are clearly feeling very confident.

That confidence was supported on Tuesday, when housing starts for November came in at 1.297 million. This result was up from 1.29 million in October and well above expectations of a decline to 1.25 million. This was the highest level of starts in a year and the second highest since August 2007. While this was probably increased by the ongoing recovery from the hurricanes, it is a good indicator that the housing market remains strong.

Also supporting this idea, on Wednesday, existing home sales for November did much better than expected. Sales rose to 5.81 million in November from an upwardly revised 5.50 million in October, well above expectations of 5.53 million. The sales rate was the highest since December 2006. This was not just due to hurricane effects, as sales rose in all regions except the West. Limited inventory remains a major factor, falling to a record low of 3.4 months of supply.

On Friday, new home sales also surprised to the upside: 733,000 for November, up from a downwardly revised 624,000 in October and well above expectations of 655,000. Here as well, supply remains constrained. Overall, given these positive numbers across the board, the housing sector continues to be strong and should keep adding to economic growth.

On Friday, the personal income and spending report was also positive, although somewhat less so. Incomes grew by 0.3 percent in November. This is a healthy number but down from 0.4 percent in October and below expectations of 0.4-percent growth. While wage growth remains constrained, the growth in the number of jobs and average hours worked pushed this higher. Personal spending growth, on the other hand, rose by 0.6 percent in November. It was up from a downwardly revised 0.2 percent in October and well above the expected growth of 0.4 percent, on the recent strong retail sales report and despite declines in auto sales and gas prices. Overall, these numbers indicate continued healthy growth in the consumer sector.

Finally, on Friday, durable goods orders were the sole disappointment on the week. The headline orders shifted from a decline of 0.8 percent in October to a gain of 1.3 percent in November on a rebound in transportation orders, particularly in aircraft. Still, this was below the expected growth of 1.8 percent. This data series is always volatile. Core orders, which exclude transportation and are a much better economic indicator, also disappointed. They declined by 0.1 percent in November after an upwardly revised gain of 1.3 percent in October, which was significantly below an expected 0.5-percent growth rate. While the gap in November is largely explained by the upward revision to October, and the ongoing post-hurricane adjustments make this less indicative, this is nonetheless something to watch. Business confidence and investment have been improving. If this is a signal of a change in trend, it could be significant.

The week ahead

Next week is a short one due to the Christmas holiday, with only one major data release.

On Wednesday, the Conference Board will release the consumer confidence survey. Confidence is expected to pull back slightly to 128 for December, down from 129.5 in November. But it remains very close to a 17-year high. Confidence at this level should still keep spending high and indicates continued economic growth.

Have a great week and a happy New Year!

Subscribe via E-mail

New call-to-action
Crash-Test Investing
Commonwealth Independent Advisor

Hot Topics

Have a Question?

New Call-to-action

Conversations

Archives

see all

Subscribe

Disclosure

The information on this website is intended for informational/educational purposes only and should not be construed as investment advice, a solicitation, or a recommendation to buy or sell any security or investment product. Please contact your financial professional for more information specific to your situation.

Certain sections of this commentary contain forward-looking statements that are based on our reasonable expectations, estimates, projections, and assumptions. Forward-looking statements are not guarantees of future performance and involve certain risks and uncertainties, which are difficult to predict. Past performance is not indicative of future results. Diversification does not assure a profit or protect against loss in declining markets.

The S&P 500 Index is a broad-based measurement of changes in stock market conditions based on the average performance of 500 widely held common stocks. All indices are unmanaged and investors cannot invest directly into an index.

The MSCI EAFE Index (Europe, Australasia, Far East) is a free float‐adjusted market capitalization index that is designed to measure the equity market performance of developed markets, excluding the U.S. and Canada. The MSCI EAFE Index consists of 21 developed market country indices.  

Third party links are provided to you as a courtesy. We make no representation as to the completeness or accuracy of information provided at these websites. Information on such sites, including third party links contained within, should not be construed as an endorsement or adoption by Commonwealth of any kind. You should consult with a financial advisor regarding your specific situation.

Member FINRASIPC

Please review our Terms of Use

Commonwealth Financial Network®