What a Difference a Year Makes: Housing Edition

Late last year a mild panic arose when the housing market hit a bit of a speed bump. Higher interest rates finally made a dent in activity which in turn stoked fears of a sharp downturn and even recession. In some ways, the concern was expected if not even understandable given the memories of the housing crash over a decade again.

Today, the National Association of Home Builders released its confidence measure and one almost wonders what all the fuss was about:

Home builder confidence rebounded to levels last seen in 1999. A good part of the story is the Fed’s pivot to easier policy. Housing is an interest rate sensitive sector of the economy and lower rates reversed the downward momentum as should have been expected.

Demographics is another factor at play. Look for a structural upswing to take hold:

Tuesday AM we see the latest housing starts numbers. Market participants anticipate starts rose to 1.35 million, although of course this is a volatile number. The combination of low interest rates, solid job growth, and a demographic push, however, suggests we should take a weaker than expect number with a grain of salt. The underlying trend looks positive and should ease any residual concerns of impending recession.

The Fed will also deliver the industrial production report for November. Expectations are for a sharp 0.8% gain in activity, but of course this partially reflects a reversal of strike-related weakness in October. Mostly we will be searching through the data for any signs that the sector is stabilizing. Stabilization is all we really need to make the comparisons with 2019 much, much better. And it may be all we can hope for; the Boeing news certainly won’t help the sector.

Also today we get the JOLTS report for October, very interesting if you care about labor market dynamics (don’t we all?) but maybe essentially old news for a market buoyed by the November employment report. Finally, we also get to hear from Boston Federal Reserve President Eric Rosengren. Even though he dissented against this year’s rate cuts, he must have come to a place where he can accept the Fed’s policy path.  After all, almost all FOMC participants expect no policy changes in 2020, and only four see a single rate hike.  No one see a reversal of this year’s cuts as necessary to meet the Fed’s mandates.

Bottom Line: The data has yet to run counter to the Fed’s base case for growth near trend next year. That means a steady Fed remains the most likely outcome for the next few quarters at least.