New Home Sales Essentially Unchanged in October at Recent High Level… New homes sold at an annual pace of 733,000 units in October, pushing the three-month average to a 12-year high.
What it means – We need more houses, and faster new-home sales should encourage builders to put more inventory on the market. We’re still at less than half of the new-home sales pace we reached in the mid-2000s, and we’ve added millions of Millennials to the labor force. These are young people who want to hit the normal markers in life. For most Americans, their home represents the largest asset they’ll ever own, but they’ve got to get in the game. We received good news on this front last week with permits jumping to 1.461 million. Let’s hope that translates into a pop in new home inventory during the important spring selling season.
S&P CoreLogic Case-Shiller 20-City Home Price Index Up 0.4% in September… The index showed a surprising jump in September, which changed the trajectory of the annual growth rate from declining to increasing.
What it means – A single month, or even a couple of months, doesn’t make a trend, but the turn in the annual home price growth rate is a welcome sign for sellers in the real estate market. The annual rate has been declining for more than a year, falling from a high of more than 6% down to 2%. But in September, the growth rate managed to inch higher, from 2.0% to 2.1%. It’s not much, but it’s definitely a change.
While sellers will welcome the news, buyers will be cautious. Affordability has been a problem for years, with home price appreciation outpacing wages. Those trends changed in 2018. If home prices move up quickly again, they could price more people out of the market. It’s a concern, but it looks unlikely. Instead of home prices moving up rapidly, chances are they’ll simply rise with inflation, which is about 2%. Demographic research has shown, over the long-term, home prices rise in line with inflation.
Durable Goods Orders Up 0.6%… Orders excluding transportation were also up 0.6%.
What it means – Durable goods orders surprised to the upside. Analysts were expecting the headline number to fall 0.7%, with the ex-transportation number notching a measly 0.1% gain. Instead, both were up 0.6%. And the news got better. Core capital goods orders, a proxy for business spending, have been weak for months. Those orders were expected to increase just 0.1% but blew past that to an increase of 1.2%. This report will give investors some comfort as we move into the holidays, showing that the economy is stable, if not on fire, even away from consumer spending.
New York Fed Finds Americans Paying for Tariffs on Chinese Goods… The report shows that prices paid for Chinese goods remained stable since the start of the trade war, which means American companies and consumers are footing the bill.
What it means – If the Chinese were taking the hit for the tariffs, they would have to lower their prices by about 20%, but that hasn’t happened. That means companies that import the goods are either eating the tariffs themselves, or they’re passing them along to their customers. Either way, someone is coughing up the cash because the U.S. government has banked about $40 billion in tariff revenue.
But that doesn’t mean China isn’t feeling pain. The country is losing market share as importers look to other nations to source their goods, and thereby avoid the tariffs. Since 2017, Chinese exports to the U.S. are down 2% in machinery and electrical equipment, and down 6% in electronics. It’s likely that when the trade war ends, those sales won’t go back to China.
Data supplied by Dent Research/Delray Beach Publishing
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