New Home Sales Disappoint, but Incomes Are Up – Market Update

The cable and the internet are down at my house right now. Thank goodness it wasn’t during the Big Ten Championship game last night. My brother is a University of Michigan alum, so it was pretty exciting around our house. Tonight, my Oakland University Golden Grizzlies are in the semifinals of the Horizon League Men’s Basketball Tournament.

If you’re not fully invested in sports, the Oscars were on last night. I haven’t seen “The Shape of Water” yet, but Frances McDormand and Sam Rockwell were great in “Three Billboards Outside Ebbing, Missouri.”

In case you haven’t noticed, I’m delaying because the economic data were mixed at best, but I guess we need to get to it at some point.

Headline News

New Home Sales

New home sales were down by about 8% in the month of January to a seasonally adjusted annualized rate of 593,000. It wasn’t all bad, though.

First, let’s have a look at the sales numbers themselves. Sales in the South were down 14.2% to 301,000 on the month and have fallen 10.9% on the year. In the Northeast, they were down 33.3% to 24,000. Home sales in the West are strongest, up 33.1% yearly. Overall sales of new homes are down 1.0% annually.

Prices fell 4.1% to 323,000. The other good news for buyers is that fewer sales meant more supply in the market. At the current sales pace, there are 6.1 months’ worth of new homes on the market compared to 5.5 months in December.

Durable Goods Orders

New durable goods orders were down 3.7% in January but have still risen 6.8% on the year. Most of the weakness was in transportation as aircraft orders fell along with other vehicles.

Because not many aircraft are ordered and they’re expensive, only a few orders can swing the number of quite a bit. Taking out transportation, orders were only down 0.3% monthly and up 6.9% annually. Finally, orders of core capital goods were down 0.2% and have risen 6.3% on the year. This marks the second loss in as many months as core capital goods orders were down 0.5% in December.

Shipments were down 0.2% with a 0.1% drop in core capital goods shipments. Unfilled orders were also down 0.3%. While this may sound like a good thing, it’s typically correlated with fewer orders as well.

International Trade in Goods

The nation’s goods deficit increased by $2.1 billion to $74.4 billion in January. Both exports and imports fell.

Exports were down 2.2%. There were fewer imports of capital goods and industrial supplies, which offset a big gain in exports of consumer goods.

Imports were down 0.5%, with imports of consumer goods falling 2.2% along with capital goods.

S&P CoreLogic Case-Shiller HPI

Prices across this 20-city survey were up in December, rising 0.6% on a seasonally adjusted basis and 0.2% overall. Prices are up 6.3% on the year overall.

The big gains are in the West. Sales in Denver and Seattle are up 1.2%. Las Vegas saw a 1.1% rise.

On the year, prices in Seattle are up 12.7%, with Las Vegas at 11.1%. On the other end of the spectrum, prices in Chicago are up just 2.6%, with Washington, D.C., seeing a 2.8% rise and Cleveland at 3.5%.

FHFA House Price Index

The Federal Housing Finance Agency (FHFA) also released its home price data last Tuesday. In their survey, prices were up 0.3% for December and 6.5% on the year.

Turning to the regional data, the Mountain and Pacific regions are up 9.0% and 8.6% respectively, with the South Atlantic following at 6.7% and the West South Central region at 6.6%. The West North Central region trails the others, but not by much. It’s up 4.6% on the year.

Consumer Confidence

Consumer confidence was up in February, rising 6.4 points to 130.8. Only 14.7% of people surveyed say jobs are hard to get. This may be a good sign for the February jobs report. In the sample, 21.6% of people also said they see more jobs opening up in the next six months.

It wasn’t all positive. Only 41.3% see stocks moving up over the next six months, and those with a negative outlook on stocks are rising at 27.4%.

There was a 7.7 point uptick in the present situation component to 162.4. Meanwhile, expectations for the future were up 5.7 points to 109.7. At the same time, inflation expectations were only up 0.1% to 4.7%, which is still pretty low.

MBA Mortgage Applications

The rates on 30-year-fixed conforming mortgages were unchanged at 4.64% last week. The market seems to take notice of the break from constantly rising rates as applications were up 2.7% overall.

Applications to refinance fell 1.0%, but purchase applications were up 6.0% on the week.

Gross Domestic Product (GDP)

Economic growth in the fourth quarter came in at 2.5% in the second estimate. This was down 0.1%, but that was expected.

Consumer spending grew at a 3.8% rate, but there were downward revisions to both durable goods spending and nondurable goods spending at 13.8% growth and 4.3% growth respectively. Service spending was up 0.3% to 2.1%.

Residential investment estimates did go up from 11.6% to 13.1% this time around. Nonresidential investment fell 0.2% to 6.6%. Net exports came in nearly unchanged at $652.2 billion, which is dropping GDP by 1.1%. Inventories have also fallen and are bringing GDP down 0.7 points.

Government purchases were up 2.9% on the quarter.

Pending Home Sales Index

The National Association of REALTORS^® reported that the number of homes with a purchase agreement in place for sale fell 4.7% to an index level of 104.6. This isn’t a good sign for existing home sales.

There were declines in all four regions, but particularly in the Northeast, which had been bouncing back.

Jobless Claims

Initial jobless claims fell 10,000 to come in at 210,000 last week. The four-week average fell 5,000 to 220,500.

Continuing claims were up 57,000 to 1.931 million. The four-week moving average was down 6,250, settling at 1.920 million.

Personal Income and Outlays

In a bit of good news, personal incomes were up 0.4% in January. Consumer spending rose 0.2%.

However, Americans appear to be saving more as prices rose faster than the spending rate, up 0.4% overall and 0.3% in core categories. Prices have risen 1.7% overall and 1.5% in these key areas on the year.

The first effects of new tax cuts were felt in January, with personal taxes down 3.3%. Wages and salaries were also up 0.5% for the second time in three months. Personal disposable income rose to 0.9% in January.

Durable goods spending was down 1.5%, but higher gas prices helped a 1.0% rise in spending on nondurable goods as well as a 0.3% rise in spending on services.

ISM Manufacturing Index

Manufacturing numbers came in at 60.8, the strongest reading in 14 years and a 1.7 point rise from where the index was in January.

New orders are at 64.2. Backlog orders are higher at 59.8. The need to cut into these backlogs is fueling new employment opportunities, with this component of the index at 59.7. Export orders are as high as they’ve been in seven years at 62.8, with imports at 60.5, the high point of the last 11 years.

On the downside, delays are on the rise, as are input costs to make the goods.

Consumer Sentiment

In the final reading of February, consumer sentiment was down just slightly to 99.7 from 99.9 at midmonth.

The current conditions component was up 4.4 points on the month to 114.9 in a good sign for consumer spending. Meanwhile, expectations rose 3.7 points to 90.0. People see more jobs becoming available in incomes rising.

Inflation expectations were unchanged from the previous month at 2.7% over the next year and 2.5% over the next five years.

Mortgage Rates

In contrast to the MBA data, mortgage rates keep pushing higher, according to the Freddie Mac survey. Last week, new Federal Reserve Chairman Jerome Powell gave his first testimony before Congress, and he’s pretty optimistic about where the economy is at. When this happens, people tend to buy stocks and sell bonds, which translates to higher mortgage rates.

The bottom line? If you see a rate you like, go ahead and lock. The trend isn’t your friend at this point.

The average rate on a 30-year-fixed mortgage was up three basis points to 4.43% with 0.5 points in fees. This is up from 4.10% at the same time a year ago.

Looking at the shorter term, the average 15-year-fixed rate was 3.90% with 0.5 points, up five basis points on the week and rising from 3.32% a year ago.

Finally, the average rate on a 5-year treasury-indexed hybrid adjustable rate mortgage (ARM) with 0.4 points filled three basis points to 3.62%. It’s up from 3.14% last year.

Stock Market

All three major stock indexes posted weekly losses, even though the S&P 500 and Nasdaq bounced back with the help of a rise in health care stocks Friday. The market has serious concerns over the recently announced tariff plan.

The Dow Jones industrial average fell 70.92 points on the day to close at 24,538.06, down 3.05% on the week. Meanwhile, the S&P 500 was down 2.04% on the week but finished up 13.58 points Friday to close at 2,691.25. Finally the NASDAQ finished at 7,257.87, up 77.31 points on the day but down 1.08% for the week.

The Week Ahead

Wednesday, March 7

MBA Mortgage Applications (7:00 a.m. ET) – The mortgage applications index measures applications to mortgage lenders. This is a leading indicator for single-family home sales and housing construction.

International Trade (8:30 a.m. ET) – International trade is composed of merchandise (tangible goods) and services. It’s available by export, import and trade balance for six principal end-use commodity categories and for more than 100 principal Standard International Trade Classification system commodity groupings.

Thursday, March 8

Jobless Claims (8:30 a.m. ET) – New unemployment claims are compiled weekly to show the number of individuals filing for unemployment insurance for the first time. An increasing trend suggests a deteriorating labor market. The four-week moving average of new claims smooths out weekly volatility.

Friday, March 9

Employment Situation (8:30 a.m. ET) – The employment situation report measures unemployment in the labor force as well as the sentiments of workers about the job market.

There’s not nearly as much going on next week, but the jobs report hits Friday, and that’s always important.

If mortgage rates in the economy aren’t exactly your cup of tea, I understand completely. If you subscribe to the Zing Blog below, we would love to share some of our home, money and lifestyle content with you. March is Women’s Month. To get things off to a good start, I thought I would share this article in which 10 female financial experts share their best money-saving tips for women. Don’t worry, guys! These tips will work for us, too. Have a great week!

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