Market Recap: NAHB Housing Market Index, Housing Starts, and Building Permits
This week, Federal Reserve Chair Janet Yellen delivered her semiannual testimony on the Fed’s monetary policy. Because of her hawkish tones, economists have increased March’s rate hike expectations to 35%. The National Association of Home Builders’ (NAHB) housing market index dropped this month and housing starts declined, but building permits increased. Retail sales posted modest increases as well.
Consumer spending makes up two-thirds of total economic activity. Retail sales is a composite measure of total merchandise and related services sales. In January, retail sales were up 0.4% on a month over month basis, and December’s previous 0.6% was revised upward to show a 1.0% increase. Sales were driven by electronics sales up 1.6% and department store sales up 1.2%, even after 2016 declines. Automotive sales dropped as they tend to do around this time of year. Retail sales, excluding vehicles, are up 0.7%.
The NAHB housing market index dropped again in January down to 65. All three components fell, current market conditions dropped to 71 and six month expectations dropped to 73. The most substantial drop was in current buyer traffic down to 46, below the 50-point neutral barrier. The NAHB attributed the declines to decreased land supply and rising prices. NAHB Chief Economist Robert Dietz said, “With much of the decline this month resulting from a decrease in buyer traffic, builders continue to struggle to minimize costs while dealing with supply side challenges such as a lack of developed lots and labor shortages.”
Housing starts and building permits exceeded expectations in January. Housing starts did drop by 2.6%, but December’s numbers were revised upward. Building permits surged 4.6%, indicating an increase in new home construction is ahead. Again, labor shortages may have impacted these reports.
The Federal Open Market Committee (FOMC) is scheduled to meet again on March 14-15. The decision to raise interest rates is largely based on economic growth. Pending fiscal policy changes may also influence the FOMC’s March vote.
Sources: MarketWatch, MarketWatch, CNBC, Business Insider, Bloomberg, Mortgage News Daily