US pending home sales fell 8.7%MoM in December. November was also revised downward. Pending home sales, an early indicator for final existing home sales, are now 8.8% lower than in December 2012.
This is a nasty surprise, that is probably partly explained by adverse weather conditions in December. It is unclear however to what extent bad weather explains sales weakness. A few bits of good news are that mortgage rates have stabilised since December, and the number of mortgage applications has also recovered to pre-December figures. There is therefore some ground to believe that today’s plunge in pending sales is a one-off that will party be reversed in the coming months. Still, it is very clear that the housing bonanza of late 2012 and early 2013 is over. The Fed’s tapering is not without consequences, and the housing market is shifting in a lower gear.
November US home prices as measured by the Case-Shiller 20-City index posted a 0.9%MoM gain (sa), down from 1.1% in October. Prices are now 13.7% higher than a year ago. Prices are holding up quite well, despite the fact that other indicators are pointing towards a slowdown. Mortgage rates went up quickly after Fed-chairman Bernanke first pondered tapering in May 2013. Sales went down with a lag after the Summer. Tight supply explains why prices remain firm despite that. The inventory of homes for sale is 5.1 months’ worth of supply, which is still comfortably below the long-term average of around 7 months.
We do expect price increases to decelerate in the coming months. With fixed mortgage rates up to 100bp higher than a year ago, demand-induced upward pressure on prices should soon diminish. That said, tight supply should ensure that the deceleration of price increases should be gentle.
Recent housing market data may have been soft, but today’s home price data confirm that the housing market provides no reason for the Fed to get cold feet about further tapering.
December US existing home sales edged up 1.0% to 4.87m (saar) from a (downwardly revised) November figure, slightly below the consensus. While this concludes the best year for sales since 2006, the last two months of the year were rather weak. This is no surprise, given that mortgage rates have risen substantially during 2013, which is now feeding through in sales figures.
Supply remains tight on the housing market. The inventory of homes for sale represents 5.0 months of supply, still well below the long-term average supply of around 7 months, keeping pressure on prices for now.
But we expect sales to remain weak in the coming months, as higher mortgage rates continue to take their toll. That said, the housing slowdown should remain muted. Mortgage rates have not risen further since the Fed announced in December that it would start tapering. The Fed has successfully decoupled tapering expectations from rate hike expectations – for now at least. And indeed the number of mortgage applications for purchases, after having fallen substantially during 2013, is stabilising in the past two weeks. While it is too early to declare this a signal rather than noise, it is a hopeful sign and we will be closely monitoring both rates and mortgage applications in the coming weeks to see where the housing market is going.
In “Markten in beweging” deze week:
- IMF-voorzitster Lagarde waarschuwde deze week voor het risico van deflatie. De Amerikanen lijken zich hier voorlopig niet veel zorgen over te hoeven maken, maar in Europa ligt dat anders.
- Oplopende geldmarktrentes vormen een tweede reden waarom de ECB mogelijk opnieuw in actie gaat komen.
- In Focus: het wel-en-wee van de internationale economie lijkt dit jaar in belangrijke mate te worden bepaald door de stuurmanskunst van politici en centrale bankiers.
Lees hier verder.
US housing starts fell 9.8%MoM in December to 999k (saar). This is merely a correction of last month’s implausible jump (which was in fact revised further upwards). The generally more reliable single-family component of starts also fell back after a November surge and ended the year at 667k (saar), still up 7.6%YoY. This is not bad at all, given the cold weather in December and increasing mortgage rates.
Housing permits also retreated a bit MoM. The momentum is clearly weakening, with YoY-growth rates in permits down to 4.6%, from double-digit growth figures just a few months back.
Looking ahead, we expect the recovery of housing construction to continue in the new year at a more moderate pace. Mortgage rates have hardly moved following the actual decision to taper in December. But due to increases earlier in 2013, fixed rates are substantially higher than a year ago. For example, the 15-year fixed mortgage rate is 3.5% today versus 2.7% a year ago. This has resulted in declining numbers of mortgage applications since May last year. That said, mortgage rates remain very low and the recovery of the US economy seems to be broadening. We therefore expect demand for new homes to remain firm. Construction activity will likely continue to increase, albeit at a slower pace than we were used to until recently.