- Fed signals tapering of bond-buying soon and the first hike in interest rates in 2022.
- Existing home sales decline, but new home sales rise.
- Jobless claims decline. Consumer sentiment is up and down.
The trend in new daily COVID-19 cases declined last week. Consumer sentiment has been up and down and has lost some ground so far in September. New jobless claims increased again last week.
New construction trends are improving as multifamily activity expands. Existing home sales declined in August while new home sales improved. Supply remains incredibly tight for existing homes, but new homes have closer to normal levels of supply.
The Fed left official policy unchanged but signaled that tapering could begin soon. Rates moved higher as a result.
Fed signals tapering: The Fed held its sixth open market committee meeting for the year last week and remained committed to zero rate policy and the quantitative easing program, but it signaled that tapering of the bond-buying program could begin soon. The official statement highlighted the dilemma that the Central Bankers face. They acknowledged that the rise in COVID-19 cases has slowed the recovery, but they also acknowledged that inflation is elevated.
In addition to communicating that tapering could begin before the end of the year, their latest rate projections indicated that the first hike in interest rates could come in 2022, when the prior consensus was 2023 for the first hike. Rates moved up in response.
Construction improves: Residential construction grew in August driven by strong growth in multifamily structures. The seasonally adjusted annualized rate (SAAR) of starts increased 3.9% and permits increased 6.0%. After the August increase, starts were up 17.4% from last August and up 17.8% compared to August 2019. Permits were up 13.5% from a year ago and up 16.8% compared to 2019. Permits lead starts, so the permitting pace at 1.728 million units was higher than the 1.615 million starts pace, and that is an indication that starts will increase in future months.
Material shortages and associated increases in costs, as well as labor shortages, have been holding back activity this year. Builders are also deliberately slowing sales of single-family to-be-built homes, as single-family starts declined 2.8% in August from July. Single-family permits increased 0.6% in August while multifamily permits increased 15.8%. Compared to 2019, single-family permits were up 18%, and multifamily permits were up 15%. Multifamily trends are more volatile in this government data, but the improving trend in July and August is indicative of improving demand for rental.
Home sales mixed: Existing home sales declined in August, essentially giving up the July gain. The existing home sales SAAR declined 2.0% to 5.88 million units, which was slightly higher than the June SAAR. At the August rate, existing home sales were down 1.5% from a year ago but up 8.5% compared to August 2019. Inventory declined to 1.29 million units, which was down 13.4% from a year ago.
The National Association of Realtors reported that 87% of the homes sold in August were on the market for less than a month, and the typical time on the market was 17 days, which was unchanged from April, May, June and July and still a record low. The months’ supply of homes for sale remained at 2.6 months, which is the highest since September 2020 but still less than half of what is considered normal. The median sales price saw a seasonal decline to $356,700 from a record $362,800 in July. Prices were up 14.9% from a year ago. Home sales were down in every region in August.
New home sales, which are based on new contracts signed, improved again in August. The new home sales SAAR increased 1.5% to 740,000, which was the highest pace since April. New home inventory was up 3.3% compared to July and up 32.2% from a year ago. The new-home supply increased to 6.1 months, which is close to normal. In August, 36% of the new homes sold were on homes not yet started, while only 22% were completed, finished units. New home sales in August were down 24% from a year ago but up 9% compared to 2019.
Consumer sentiment dips: The daily index of consumer sentiment from Morning Consult was up and down last week but has managed to see a slight 0.1% increase from the prior week. However, sentiment is down 0.1% for the month after declining 5.5% decline in July and 3.1% in August. The Morning Consult Index as of last Friday was down 19.7% since February 29, 2020. Today’s index level is where it was in mid-February.
Jobless claims drop: As of Sept. 11, 2.85 million Americans remain on traditional unemployment benefits, which are limited to at most six months of coverage, and 11.2 million people were on some form of unemployment benefits including pandemic unemployment assistance as of Sept. 4, which was when that assistance ended, leaving 8.5 million people unsupported. Initial claims increased last week to 351,000, after falling to a pandemic low two weeks prior. Weekly claims remain elevated as they averaged 212,000 per week in 2020 in the weeks before the pandemic began.