Easing into 2015

Keeping you updated on the market! For the week of January 5, 2015

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MARKET RECAP Easing Into 2015 We like where home price are headed. That is, they are easing. They have assumed a more steady and sustainable rate of growth. Recent price data from Black Knight supports our contention. Black Knight follows completed transactions in more than 18,500 U.S. ZIP codes. For October, prices were up 0.1%, on average. Year over year, they were up 4.5%. This is much closer to historical growth rates. Mortgage lending rates are also easing into 2015. The 30-year fixed-rate loan is still regularly quoted below 4%, which is no surprise. The yield on the benchmark 10-year U.S. Treasury note hovers around 2.2%. This is nearly 100 basis points less than where it was a year ago. The 10-year note is showing no inclination to move higher. Mortgage rates are also showing no inclination to move higher. Unfortunately, homes sales are easing into 2015 at too languid a pace. In November, existing homes sales sank 6.1% to 4.93 million units at an annualized rate. The number of units sold on a monthly basis has yet to pick up pace. We are still at the same annualized rate we were at this time last year. As for new home sales, they too, are easing into 2015. November new home sales were down 1.6% in November, to an annualized rate of 428,000 units. As with existing home sales, the sales pace is on par with where we were a year ago. Home sales had been showing some life going into the fourth quarter, but the readings on November have been a disappointment. We were expecting better. That said, we still like the longer-term outlook on both housing and mortgage financing. Yes, sales are flat, but the continued gains in economic growth and employment will prove salutary. (This is a theme we've pounded on frequently over the past six months.) Gears will eventually mesh and sales will move higher. Financing available to a wider swath of the population will help. Lending – mortgage and consumer – is heading in the right direction. Lenders are more willing to make loans, and consumers are more willing to take them. That's a sign of growing confidence in the economy. We were one of the few voices promoting housing and mortgage lending in the dire days of 2009. We were proven correct: Housing indeed recovered. These aren't dire days by any stretch of the imagination, though sometimes they are frustrating days. The good news is that housing is as poised as it has been in years to lead the economy forward. The funk will be broken.

 

Economic Indicator	Release Date and Time	Consensus Estimate	Analysis
Mortgage Applications	Wed., Jan. 7, 7:00 am, ET	None	Important. Activity remains low, which points to slow sales growth in early 2015.
Federal Reserve FOMC Meeting Minutes	Wed., Jan. 7, 2:00 pm, ET	None	Important. Expect more Fed governors to express an interest in tightening monetary policy.
Consumer Credit (November)	Thurs., Jan. 8, 3:00 pm, ET	$13.5 Billion (Increase)	Moderately Important. Rising credit use is reflective of easing credit standards.
Employment Situation (December)	Fri., Jan. 9, 8:30 am, ET	Unemployment Rate: 5.8% Payrolls: 228,000 (Increase)	Very Important: Continued strong job growth increases the likelihood of the Federal Reserve altering its interest-rate policies.

 

The Stock Market and Housing Nothing exists in a vacuum. All markets are interconnected to some degree. Last week, we discussed stocks and housing. Which is the preferable asset? The reality is that the two are not mutually exclusive. It's not an “either/or” scenario. What's more, one can influence the other, and frequently does. Stock market losses can lead to decreased housing demand, or to increased housing demand. Housing can have the same impact on stock prices. We saw falling home prices lead to falling stock prices in 2008. When housing values plummeted, so did stock prices. Through late 2007 to early 2009, the S&P 500 stock market index lost more than half its value. Interestingly, though, when stock values sank after the bursting of the Internet bubble in 2000, home prices, on average, rose. Stocks have been on a strong run since early 2009. The S&P 500 has nearly tripled in price. This has no doubt produced a “wealth effect” that has helped the housing recovery. When people feel wealthier – as they do when they see the value of their investments rise – they are more willing to spend. This includes spending on housing. That said, the stock market is on a six-year bull run. That's long as bull runs are concerned. Therefore, we would not be surprised to see a retreat in stock prices in 2015. If stock prices retreat, could this lead to falling home prices? Or could it lead to rising home prices? If stock prices were to retreat, we think the latter scenario – continued rising housing prices – is more likely. We say that because homes are much more reasonably priced today compared to 10 years ago. That said, it will be worthwhile to keep an eye on the stock and housing markets in 2015. Article courtesy of Patti Wilson, American Momentum Bank