Despite the sharply higher mortgage rates, purchase applications for home mortgages rose 3.0 percent on a seasonally adjusted basis in the week of December 16th. This puts the purchase index 1 percent above the level in the same week a year ago. Refinancing also rose 3.0 percent from the prior week. Interest rates on the 30-year fixed rate conforming mortgages climbed 13 basis points from the week prior to 4.41 percent to the highest level since May 2014.
Existing Home Sales
Sales rose a surprise 0.7 percent to a 5.610 annualized rate which is a cycle high, this is well ahead of October’s 5.570 million which is the second highest of the cycle. Resale of single family homes slipped 0.4 percent in the month but the 4.950 million rate is the cycle’s second highest, next only to October’s 4.970 million. Condo resales were the strength of the November report, up 10.0 percent to a 660,000 rate. Year on year rates have barely been in the plus column this year. Total resales were up 15.4 percent in November with single family resales up 16.2 percent and condos up 10.0 percent. Supply is very thing in the market right now which is resulting in driving up prices. Supply fell a steep 8.0 percent in the month to 1.850 million which is down 9.3 percent on a yearly basis. The median price rose 0.3 percent higher in the month to $234,900 for a yearly gain of 6.8 percent. Aside from the rising prices, rising mortgage rates are another factor that will limit the affordability of resales.
The third quarter lived up to its early expectations, rising with each new revision to an inflation adjusted 3.5 percent annualized rate for the best showing in two years. The consumer was the driving force in the quarter, spending at a 3.0 percent rate (up from 2.7 percent in the prior estimate) on top of the second quarter’s very strong 4.3 percent rate. Exports, benefiting from agriculture, were another positive as was nonresidential fixed investment which got an upgrade in the latest estimate to show a plus 1.4 percent annualized rate. Inventories also added to the quarter, but less so than prior estimates predicted, which is a positive for fourth quarter production and employment. The GDP price index is unrevised at 1.4 percent. The fourth quarter, held down by a reversal for exports and perhaps by less strength in consumer spending, isn’t as strong at the third quarter proved to be.
In a negative sign for the December employment report, initial jobless claims rose 21,000 in the week of December 17th to a much higher than expected level of 275,000. The week of December 17th is also the sample week of the monthly employment report and a comparison with the November sample week that shows a sizable 42,000 gain. A comparison of 4 week averages at 263,750 in the latest week shows a 10,750 gain. Continuing claims rose 15,000 in lagging data for the week of December 10th to 2.036 million with the four week average down slightly to 2.037 million. The unemployment rate for insured workers remains unchanged at 1.5 percent.
FHFA House Price Index
The FHFA house price index rose a softer than expected 0.4 percent in November, 1 tenth shy of economists forecast but following strong gains of 0.6 percent and 0.7 percent in the two prior months. And despite the weakness, the yearly gain is at plus 6.2 percent, marking the third straight month the rate is over 6 percent. Home price appreciation has been less than sensational this year but has been steady and remains much higher than income growth. Low supply in the new and resale markets hints at perhaps a stronger appreciation next year.
Personal Income and Outlays
Though November may have been a cycle high for confidence it actually proved to be a weak month for the consumer. Personal income was unchanged in November as the wages and salaries component dipped into the negative column at minus 0.1 percent. Consumer spending rose 0.2 percent and reflected specific weakness in vehi9cles. Not helped by the weakness in income, the consumer had to dip into savings during the month where the rate fell 2 tenths to 5.5 percent. Price date is flat, unchanged for both the PCE and PCE core (less food & energy) with the yearly rate at 1.4 percent for the PCE and at 1.6 percent for the core. The yearly rate for the core fell 2 tenths to 1.6 percent, this does not point to accelerating inflation pressures. Two months into the fourth quarter, consumer spending is running at a plus 2.0 percent annualized pace, well down from the 3.0 percent rate of the third quarter.
New Home Sales
New home sales jumped 5.2 percent in November to a 592,000 annualized rate that is the second strongest of the recovery. But this report is very volatile on a monthly basis which points to the need to look at the three month average that at 575,000 has shown little change since the summer. Lack of supply, at 5.1 months at the November sales rate, which is very thin, is holding down sales but isn’t giving much lift to prices where the median is at 305,400, up 0.9 percent on the month but down 3.7 percent on a yearly basis. But, the year on year sales rate has been very strong, reflecting an upshift in trend that started in July when sales hit the cycle peak of 622,000. New home sales are up 16.5 percent compared to November last year in what contrasts sharply with the decline in prices.
Consumer sentiment ends December at 98.2, up 2 tenths from mid-month for a new cycle high. The index began to take off in November following the presidential election as a record percentage of respondents, at 18 percent, “spontaneously mentions” the expected favorable impact of new economic policies .The prior record for this measure was 9 percent back in 1981 following Reagan’s victory in the presidential election. Gains are strong for both the current conditions and the expectations components, the former hinting at stronger monthly readings for consumer spending and the latter pointing to rising confidence in the jobs outlook. Despite confidence in the labor market there doesn’t seem to be much hope for wage gains. Inflation expectations are at record lows at 2.2 percent for the year ahead outlook, down 2 tenths from November and at 2.3 percent for the five year outlook, down 3 tenths. The jump in confidence during November didn’t translate into stronger consumer spending though high spirits would certainly see ma positive for the holiday shopping season.