Monday, December 8, 2014

Do Lower Oil Prices Lead to Higher Housing Demand?


 
Keeping you updated on the market!
For the week of

December 8, 2014



MARKET RECAP
Do Lower Oil Prices Lead to Higher Housing Demand? 
The question is intriguing, given the steep decline in oil and gasoline prices over the past couple months. After all, less money spent on gasoline, the more money that can be spent elsewhere. Housing is elsewhere. 
CoreLogic recently tackled the oil/housing question in a blog post by one of its senior economist Molly Boesel. The quick answer is that it appears that lower oil prices can lead to higher housing demand. A few variables come into play, though: number of miles driven; the actual price of gasoline; and for certain homeowners, the price of oil for heating fuel. 
Number of miles driven and gasoline prices are most interesting. Data show that the lower gasoline prices fall, the more buyers are willing to move from urban centers into higher-priced homes. The key is that consumers need to believe that lower gasoline prices are sustainable over the long haul. The longer gas prices fall, or hold lower levels, the more willing consumers are to buy a home, particularly a suburban home.  
Predicting oil prices, though, is as difficult as producing mortgage rates, maybe more so. Oil prices can hold low levels for an extended time, as in the 1990s. But oil prices are frequently spiky, and the spikes can be quite volatile. Oil priced at $65/barrel in one year can soon be $140/barrel the next. 
In short, we are not banking on oil prices holding these low levels. But if they do, the good news is that housing is likely to be a beneficiary.
As for good news in the present, mortgage purchase applications continue to trend higher.  The Mortgage Bankers Association's purchase index was up again last week, posting a 3% increase. Purchase activity has been gradually ratcheting higher over the past month. We are seeing more purchase activity despite a slight decrease in mortgage credit availability.  This suggests more buyers are entering the market, and they are getting credit. 
Going forward, sustained lower oil prices would be nice, and so would a sustained rise in purchase application activity. The former gives consumers more money, the latter signifies the return to a more normalized lending market. 

 

Economic
Indicator
Release
Date and Time
Consensus
Estimate
Analysis
Mortgage Applications
Wed., Dec. 10,
7:00 am, ET
None
Important. Purchase activity continues to trend higher and portends rising overall housing sales.
Import Prices
(November)
Thurs., Dec. 11,
8:30 am, ET
1.5% (Decrease)
Moderately Important. Lower oil prices will continue to depress the import-price index. 
Retail Sales
(November)
Thurs., Dec. 11,
8:30 am, ET
0.2% (Increase)
Moderately Important.
Despite lower energy prices, sales in total dollars are rising. The good news is that more dollars are flowing to bigger-ticket items. 
Producer Price Index
(November)
Fri. Dec. 12,
8:30 am, ET
0.4% (Decrease)
Moderately Important.  Falling producer prices ensure interest rates will continue to hold today's low levels. 

 

Where Do We Go From Here? 
We're near the time of the year when people begin to gaze into their crystal ball. What should we expect for 2015?
Bill McBride at CalculatedRiskBlog.com gathered estimates from a number of difference sources. So far, nothing is out of the ordinary. Most prognosticators see the recent past extending into the future. New home sales estimates range between 498,000 and 620,000 units on an annualized rate for 2015. (The NAR estimate is on the high end.) Total home starts range between 1.056 million and 1.3 million units on an annualized rate. (The NAR again offers the high-end estimate.) 
On the price front, nearly everyone has throttled back price-appreciation expectations for next year. Estimates range between 2.4% and 5.2% annual price increases at the national level. (CoreLogic offers the high-end estimate.) This is no surprise. We've been saying since the beginning of 2014 that price appreciation will decelerate.  We expect it to continue to decelerate to within the range most analysts expect. This is, after all, a normalized range based on historical trends. 
As for mortgage rates in 2015, CalculatedRiskBlog doesn't say.  But we see the rate on the 30-year fixed-rate loan hovering between 4.0% and 4.5% for the first quarter of 2015.  After that, it is hard to tell. Rates will depend on economic growth, job growth, wage rates, and inflation. If they are mostly up after the first three months, the Federal Reserve will start to talk up interest rates, which will lead to rates actually rising.

Article courtesy of Patti Wilson, American Momentum Bank
 

Wednesday, December 3, 2014

The Big View.


 
Keeping you updated on the market!
For the week of

December 1, 2014



MARKET RECAP
The Big View
The holidays are a nice respite. Things slow down a bit, which allows us to stand back and take in the big picture.
We like what we see, because the big picture includes steady improvement in housing. As we reported last week, housing sales are trending higher. In addition, more sales are being financed with a mortgage. That we are seeing more purchase applications is a sign of more owner-occupied buyers. These buyers have always been the key drivers of the housing market.
Recent trends in home prices point to more buyer interest and more inventory from which to choice.
On the pricing front, S&P/Case-Shiller's closely followed 20-city price index rose 0.3% month over month for September. Year over year, the index is up 4.9%. This is the slowest pace of year-over-year price growth since October 2012. This is actually good news because we are seeing the pace of price appreciation return to historical norms, and historical norms are sustainable norms.
That said, price appreciation is still found in most local markets. Of the 20 markets in Case-Shiller's index, 18 showed price gains for the month.
We expect home prices to continue to appreciate in most markets Case-Shiller follows. We say that because we remain confident in the economic outlook. Fortunately, many consumers apparently share our perspective.
Consumer confidence , overall, remains encouraging. Though down slightly in November, confidence has been on the rise through most of 2014. Better yet, consumers remain upbeat on the outlook for job creation. The latest data from the Conference Board show more people view the job market favorably. This, in turn, points to another favorable employment report next week. (Look for another month of 200,000-or-more new jobs for November.)
The positive data on jobs, housing, and mortgage lending over the past six months gives us even more reason to be thankful this time of year. The good news is that we don't expect this sense of gratitude to abate any time soon.

 

Economic
Indicator
Release
Date and Time
Consensus
Estimate
Analysis
Construction Spending
(October)
Tues., Dec. 2,
10:00 am, ET
0.5% (Increase)
Important. Rising residential spending points to rising home sales in coming months.
Mortgage Applications
Wed., Dec. 3,
7:00 am, ET
None
Important. Purchase activity is on the rise, which is an important development for the owner-occupied market.
Labor Productivity & Costs
(3rd Quarter 2014)
Wed., Dec. 3,
8:30 am, ET
Productivity: 1.7% (Increase)
Costs: 0.6% (Increase)
Moderately Important.
Productivity outpacing costs is a positive for future wage growth.
Employment Situation
(November)
Fri., Dec. 5,
8:30 am, ET
Unemployment Rate: 5.7%
Payrolls: 230,000 (Increase)
Very Important. Strong job growth points to sustained housing growth.

 

The Best of Both Worlds
 
The economy continues to hum along. What's more, it continues to hum along at a higher pitch than most economists had expected. Gross Domestic Product (GDP) – the value of all goods and services – was revised up to an annual growth rate of 3.9% in the third quarter. The consensus estimate called for GDP to be revised to show 3.2% growth.
Within the GDP data, the trends in private investment were particularly encouraging. Both nonresidential fixed investment and residential fixed investment ratcheted higher. This is good news because more investment today leads to more consumer spending tomorrow.
We're not particularly surprised that economic growth is picking up. After all, the economy has been producing new jobs at the rate of 200,000+ per month for most of 2014.
On the other hand, interest rates are a surprise. When economic growth ratchets higher, so, too, do interest rates. This time around is different, though. Interest rates continue to remain subdued. The 10-year U.S. Treasury note continues to hover around 2.3%. This is the low-end of the range that has prevailed through 2014. At the same time, mortgage rates remain low. The 30-year fixed-rate mortgage continues to vibrate around 4%.
We have rising GDP growth coupled with low interest rates. What's more, growth should continue to rise, while rates should remain low. We say that because consumer-price inflation remains very subdued.
So, we have the best of both worlds – strong growth and low lending rates. This unique paradigm suggests housing should get off to a strong start in 2015.
Article courtesy of Patti Wilson, American Momentum Bank.