This morning, we received further confirmation that higher interest rates are taking a toll on demand for new homes. Specifically, housing starts for the month of November came in at a seasonally adjusted annual rate of 1.427 million. This was down slightly from October’s revised estimate of 1.434 million, but 16.4% below the November 2021 figure. The consensus estimate had called for 1.40 million starts. Meanwhile, building permits, a more forward looking indicator, showed an even sharper decline, with November coming in at 1.342 million, versus 1.51 million the month before, and down 22.4% from last year’s rate. Consensus was calling for 1.48 million. On the plus side, the average 30-year fixed rate mortgage has come down about half a percentage point so far in December, to around 6.6%. However, the current rate is still more than double where it stood at the start of the year.
Last week, the Federal Reserve raised its overnight lending target rate by 50 basis points, or half a percent, to a range of 4.25%-4.50%. While the increase was lower than the four previous hikes, the central bank has indicated that it is not done, and rates may well top the five percent mark by the first quarter of 2023. (The Fed’s next meeting is scheduled for early February.)
As we near the start of a new day, U.S. stock futures are indicating a mixed open for the major market averages. In overnight trading, stocks in Asia closed sharply lower after the Bank of Japan announced it had widened its target range for Japanese government bond yields by a quarter percent, to half a percent above or below 0%. Meanwhile, the European indexes are mostly showing modest losses. Elsewhere, oil futures have moved higher, with West Texas Intermediate up about 1%, to around $76 a barrel.
Stocks got the week off on a down note yesterday, with the Dow Jones Industrials shedding 162 points, or 0.5%. The broader S&P 500 lost 34 points (0.9%) and the NASDAQ fared the worst, falling 159 points, or 1.5%. As it stands, hopes for a “Santa Claus rally” appear to be fading, with stocks on track to post a decline for the month of December.
Looking ahead to the rest of the week, tomorrow brings us the November figure for existing home sales. There, the seasonally adjusted annual rate is widely expected to decline, falling from 4.43 million in October to an estimated 4.17 million. Thursday’s releases include the index of leading economic indicators for November, where a negative reading is likely, but not as bad as October’s. Last, and certainly not least, Friday brings the Personal Consumption Expenditures (PCE) Index for November. Often cited as a key measure for the Fed, the number will be closely watched for any further signs of inflation abating. The day also includes the figures for new home sales and durable goods orders for last month, both of which will likely show declines. – Mario Ferro
At the time of this article’s writing, the author did not have positions in any of the companies mentioned.
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