Market Recap: Retail Sales Pull Back, Housing Market Index Unchanged, Housing Starts and Building Permits Up
Mortgage rates continued to rise this week. Next week, the Federal Open Market Committee (FOMC) will release the minutes from its January meeting, the last meeting with Janet Yellen as Federal Reserve Chair. Retail sales slumped slightly in January, after a gainful holiday season. The National Association of Home Builders’ (NAHB) housing market index was unchanged and housing starts and building permits surged.
Retail sales measure the total receipts of goods and services sold at retail stores. Consumer spending spurs economic momentum and accounts for two-thirds of total Gross Domestic Product (GDP). After strong holiday spending, retail sales dropped off, down 0.3% from December to January. Excluding autos, sales were still down 0.2% month-over-month. Vehicle sales were strong heading into the end of 2017, after hurricanes damaged vehicle inventory across the southeastern United States. In January, auto sales specifically were down 1.3% from December. Spending on home furnishings also declined.
The NAHB housing market index measures home builders’ perceptions on current and future home sales. Any reading above 50 is considered positive. Home builders have been confident heading into the end of 2017, with the expectation that corporate tax cuts will benefit their business. In February, the housing market index was unchanged at a level of 72. Current sales conditions dropped slightly to 78, sales expectations for the next six months increased to 80, and buyer foot traffic was unchanged at 54. With a competitive market and tightened inventory, builders are confident about steady demand for new homes heading into 2018.
Housing starts track ground broken on residential projects and building permits track permits issued. After an end of year slump due to cold winter weather, both housing starts and building permits rebounded in January. Housing starts were up 9.7% to a seasonally adjusted annual rate of 1.326 million, the highest level in two years. Building permits climbed 7.4% to a seasonally adjusted annual rate of 1.396 million, the highest level since June 2007.
Mortgage rates are rising and will likely continue to trend upward this year. The minutes from the Fed’s January meeting will give analysts a clearer roadmap for upcoming federal interest rate hikes. Despite the increase, average rates are only about a half of a percentage point higher than they were one year ago. By historic standard, rates are relatively low, and with unemployment at a historic low and inflation near the targeted pace, no drastic spike is expected.
Sources: Bloomberg, CNBC, CNBC, MarketWatch, Mortgage News Daily