Morning Report: Construction spending disappoints

Vital Statistics:

Stocks are lower this morning on negative trade talk out of the White House. Bonds and MBS are up, following German Bund yields lower.

Home Prices rose 3.5% YOY in October, according to CoreLogic. “Nationally, over the past year, home prices are up 3.5% with the rate of growth accelerating from September into October,” said Frank Martell, president and CEO of CoreLogic. “We expect home prices to rise at least another 5% over the next 12 months. Interestingly, this persistent increase in home prices isn’t deterring older millennials. In fact, 25% of those surveyed anticipate purchasing a home over the next six to eight months.” CoreLogic conducted a survey with RTi Research regarding to consumer-housing sentiment and found that millennials are largely unconcerned about qualifying for a mortgage.

Construction spending disappointed in October, falling 0.8% on a MOM basis and rising 1.1% on an annual basis. Residential Construction fell 0.9% on a monthly basis and was up only 0.5% year-over-year. Despite the lousy number, the National Association of Realtors is optimistic that homebuilding will step up in 2020. “This housing cycle is definitely unique in the sense that it’s been a decade and we’re not back to normal in terms of home building,” said Lawrence Yun, NAR’s chief economist. “Many small-time builders are still out of the game. It was small-time builders in the aggregate that built many more homes than the big builders, and they’ve hesitated to get back in, even though it appears there is a money-making opportunity….All the factors that contribute to higher home sales like the job situation are terrific, and of course mortgage rates are critical to buying a home and those are favorable,” Yun said.” Note that construction loans increased 0.8% in the third quarter.

The Fed is considering raising its inflation target above its 2% target, according to the Financial Times. The idea (called the “make-up” strategy) would be to temporarily raise the target level if inflation comes in below 2% (the current target). The Fed fears deflation more than inflation, and has been utterly vexed by their inability to push inflation up to their target rate. This would be a signal to the markets that the Fed intends to keep rates lower for longer, although many members are worried about communication issues with the markets.

HUD has put out a request for information regarding affordable housing development, specifically which laws, regulations or administrative practices are inhibiting building. “Owning a home is an essential component of the American Dream. It is imperative that we remove regulatory barriers that prevent that dream from becoming a reality,” said HUD Secretary Ben Carson, who is also Chairman of the White House Council on Eliminating Regulatory Barriers to Affordable Housing. “Through this request, communities across the country will have the opportunity to identify roadblocks to affordable housing and work with State, Federal, and local leaders to remove them.”

Author: Brent Nyitray

In the physical sciences, knowledge is cumulative. In the financial markets, it is cyclical View all posts by Brent Nyitray