QUOTE OF THE WEEK… “There are good days and there are bad days, and this is one of them.” –Lawrence Welk, American musician
INFO THAT HITS US WHERE WE LIVE… The famous band leader is aptly describing a day like today, when we have to report both a surprising boost in Housing Starts, along with an unexpected bomb from Existing Home Sales. Starting with the “good day” stuff,Housing Starts were up 22.7% in November, to a 1.091 million unit annual rate. This was well above expectations and the highest level for starts in more than five years. New Building Permits dipped slightly in November, but still beat forecasts, hitting a 1.007 million annual rate. Small wonder the NAHB home builders confidence index was up 4 points in December, to its highest level in 8 years.
The “bad day” news is the unexpected 4.3% drop in Existing Home Sales in November, to a 4.90 million annual rate. Many feel a lack of inventory is keeping sales down and there was in fact a slight decline in inventories for the month. In addition, existing home sales are counted at closing (versus new home sales, calculated when a home goes under contract). November sales went under contract in September and October. During the government shutdown in October, some closings were delayed because income couldn’t be verified by the IRS. This is why various analysts expect existing home sales to rebound in the coming months.
BUSINESS TIP OF THE WEEK… It’s critical to write down your financial goals and a strategy for reaching them next year. Be specific in describing the goals and be realistic, taking into account the trends in your industry.
>> Review of Last Week
TAPER TIME!… Following Wednesday’s FOMC meeting, the Fed finally announced the long-anticipated taper of its bond buying program. It’s just a start, as the central bankers will be trimming their asset purchases by “only” $10 billion, to $75 billion per month, including $35 billion in mortgage bonds. But Wall Street investors read this decision as an expression of the Fed’s confidence in the underlying strength of the economy, so they bid stocks up in giddy anticipation of a brighter economic future for us all. The Dow and the S&P 500 ended the week at record levels and the Nasdaq put in a not-too-shabby performance.
Support for the Fed’s optimism came, as if on cue, on Friday, when the final Q3 GDP report showed the U.S. economy expanding at a totally unexpected 4.1% annual rate. Consumer spending and business investment were found to be stronger than previously reported. The Philly Fed index of manufacturing sentiment in that region rose in December and has stayed positive seven months in a row, indicating steady expansion. Also beating estimates were Housing Starts, Building Permits, Q3 Productivity, and Industrial Production. The only misses were Existing Home Sales and New York Empire Manufacturing.
The week ended with the Dow up 3.0%, to 16221; the S&P 500 up 2.4%, to 1818; and the Nasdaq up 2.6%, to 4105.
Over in bonds, Treasuries mostly slid thanks to the Fed’s announcement it would start tapering its bond-buying program. Yet the FNMA 3.5% bond we watch ended the week up .03, to $99.27. National average fixed mortgage rates rose slightly for the week ending December 19 in Freddie Mac’s Primary Mortgage Market Survey. This was attributed to the positive news for housing starts and building permits. Remember, mortgage rates can be extremely volatile, so check with your mortgage professional for up to the minute information.
DID YOU KNOW?… Single-family housing starts were up 20.8% in November and are up 26.2% over a year ago.
>> This Week’s Forecast
INCOME UP, INFLATION FLAT, NEW HOMES DOWN… A light week of economic data will nonetheless give us some key reads. Personal Income is forecast heading back up in November after its October dip. The Core PCE Prices measure of inflation is expected to remain up just a tad, same as the prior month. But New Home Sales are predicted to be off a little for November.
Christmas Day, Wednesday, the financial markets will be closed. We wish you and yours all the best this holiday season!
>> The Week’s Economic Indicator Calendar
Weaker than expected economic data tends to send bond prices up and interest rates down, while positive data points to lower bond prices and rising loan rates.