US February Housing Data – A Preview

Coming up this week, we have a series of data releases relating to the US housing situation.  However, these might be a bit overshadowed considering the all-important NFP release coming up at the end of the week.

We’ve discussed previously how housing data influences the currency markets. And of course, it’s a matter of latent concern following the subprime crisis. At the end of the year, we had data points giving some warning signs, so given the raft of important housing data coming up, has anything changed?

What are analysts looking at when it comes to the US housing market?

Schedule and Expectations

We get the first peek at housing data on Tuesday, at 16:00 CET (or 10:00 EST) with the New Home Sales data.

This has been delayed data due to the partial government shutdown. While an important bit of data for the market, it’s not expected to have much immediate effect.

New home deliveries surprised on the upside the last time they were published (for November). Currently, projections are for further good data in December despite the broader downturn in the markets at the time. New home sales are expected to fall month over month by just 2.2% to 609K homes.

Then we jump to Friday, when we will be getting the bulk of the housing data at the same time as the NFP: 14:30 CET (or 08:30 EST). The jobs report is going to overshadow the housing data release, but that doesn’t mean that its potential effect on the market should be ignored.

In fact, it could temper or exaggerate the response to the report and inject further volatility. This set of data has also been a casualty of the shutdown and corresponds to January Housing starts and building permits.

Expectations are for building permits to have remained largely stable at 1.323M compared to 1.326M in the prior month. Housing starts are expected to increase to 1.27M from 1.08M.

US Housing Situation

Housing is intimately related to the Fed and interest rate policy because well over 70% of homes are bought with debt. Existing homes are also refinanced with debt. Therefore mortgage rates are seen as a predictor of where the market really thinks rates are going. This, in turn, affects the affordability of homes for people and buying patterns across America.

The 30-year average mortgage rate peaked at a 7-year high in mid-November while there were still expectations that the Fed would continue its tightening cycle. However, with the change in interest rate outlook, mortgage rates have been declining since then. They have now slipped to 4.35%, the lowest since January of 2018.

Last week we had home sales data from the National Association of Realtors showing that home sales were back on the rise after falling in December. A report that homeownership is at a four-year high then followed. However, despite that, housing inventory remains high, though has slipped a bit from its most recent peak in October.

Sales Trends

If we look a little deeper into the data, we find that average prices are on the rise. DR Horton, the largest US home builder, reported price increases of 7% annual. Even still, many Americans are opting for cheaper options.

The CEO of DR Horton acknowledged during their Q1 conference call that the top end of their pricing options hare having issues selling. In fact, in January, unofficial new home sales slipped by 8% even though homeownership was higher as a whole.

This indicates that in response to increasing house inflation, people are opting for cheaper options, such as used homes. Thus, this explains the growing divide between the median household price and the average household price.

The CEOs of both of the largest homebuilders in the US, DR Horton, and Lennar, agreed that the market remains attractive. In fact, they continue to see house prices rising by a further ~7%.

If the Fed holds off on further rate increases and mortgage rates continue their decline, they might just be right. After all, delinquency rates continue to drop – though they are still far from the pre-crisis average.