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Market Forecast: Retail Sales, Housing Market Index, Housing Starts, and Building Permits
Posted On February 12, 2018
Mortgage rates did not move much last week, and the likelihood of a March rate hike has dropped following some stock market volatility. This week’s important housing reports scheduled for release are the home builders’ sentiment index and housing starts and building permits. Though home builder confidence declined last month, home builders were setting record confidence levels most of the past year. Housing starts and building permits were hurt last December by frigid winter weather. Other market-moving reports include retail sales and retail sales excluding auto; consumer spending is a big driver of economic momentum.
Retail sales track changes in the total number of receipts for goods and services sold at retail stores. Consumer spending accounts for two-thirds of Gross Domestic Product (GDP). In December, retail sales improved, up 0.4% month-over-month. The holiday season tends to drive spending. Less gas and auto, retail sales were up 0.3% month-over-month. Annually, total retail sales are up a strong 5.4%.
The National Association of Home Builders’ (NAHB) housing market index tracks home builders’ sentiment on current sales conditions, expectations for the next six months, and buyer foot traffic. The housing market index has been overwhelmingly positive for most of the past year, any reading above 50 is considered positive. In January, sentiment scaled back slightly to a composite level of 72. Current sales conditions fell to 79, sales expectations fell to 78 and buyer foot traffic dropped to 54. Although builders had mixed feelings about changes to the mortgage interest tax deduction and the cap on state and local taxes, the corporate tax cuts will likely boost overall industry activity.
Housing starts track ground broken on residential projects and building permits count permits issued. Construction activity scaled back in December, housing starts were down 8.2% month-over-month and permits were almost unchanged. Unseasonably cold winter weather might have contributed to stalled construction. For the entire year, housing starts and building permits were strong. The total number of completed new homes reached the highest level since 2007.
Home buying and selling tends to pick up in the spring season. Even with the upward trend in mortgage rates, 2017 housing activity was strong, and this momentum is expected to carry into 2018. The main problem the housing industry is facing is lack of available inventory. Buyers are vying for the same homes and until supply catches up with demand competition is expected to continue.