Housing continues to support growth in the U.S. economy, and consumer credit continues to flow as the Federal Reserve suggests interest rates will remain stable.
Housing strong: With mortgage rates again approaching all-time lows, demand for housing is high, but supply is tight. Existing homes are appreciating much more than normal, which encourages more new construction. Permits are up nearly 18% over last year. Strong housing and construction historically have correlated with robust pickup truck sales.
Credit still flows: Consumer credit default trends diverged in January, with credit card defaults rising but not as high as last year, mortgage defaults increasing and reaching a multi-year high, and auto defaults moving down slightly. As reported last week, even though the delinquency rate on subprime auto loans is at an all-time high, the delinquencies are not translating into defaults. Credit is still flowing as loan performance is strong and risk is being compensated. The average “best available” 60-month new vehicle loan rate according to Bankrate.com was 4.66% last week, which was effectively unchanged from the end of December.
Fed policy steady: The Fed is determined to keep rate policy where it ended 2019, but the financial market sees rates drifting lower. Coronavirus (aka, COVID-19) has become a more significant concern for the global economy and is the primary reason behind longer term rates heading toward 12-month lows. We are getting close to all-time lows for some tenors of bonds.
Looking ahead: This week we will get new and pending home sales data and personal income and spending data for January as well as consumer confidence and sentiment for February.
