Wednesday, December 3, 2014

The Big View.

Keeping you updated on the market!
For the week of

December 1, 2014

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.


Date and Time
Construction Spending
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
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
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.

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