New Housing Starts Jump in December

Up 16.9% from November and up 40% from December 2018.

According to the newly released report by the U.S.Census Bureau and the U.S.Department of Housing and Urban Development jointly, U.S. home building surged to a 13-year high in December as activity increased across the board, suggesting the housing market recovery continues amid low mortgage rates, and could help support the longest economic expansion on record.

Housing starts jumped 16.9% to a seasonally adjusted annual rate of 1.608 million units last month, the highest level since December 2006. The percentage gain was the largest since October 2016. Data for November was revised higher to show home building rising to a pace of 1.375 million units, instead of advancing to a rate of 1.365 million units as previously reported.

Housing starts soared 40.8% on a year-on-year basis in December. An estimated 1.290 million housing units were started in 2019, up 3.2% compared to 2018.

Single-family home building, which accounts for the largest share of the housing market, jumped 11.2% to a rate of 1.055 units in December, the highest level since June 2007. Single-family housing starts rose in the Midwest and the populous South. They, however, fell in the Northeast and West.

What Happened to Rates Last Week?

Mortgage backed securities (FNMA 3.000 MBS) lost just -5 basis point (BPS) from last Friday’s close which caused fixed mortgage rates to remain at the same levels compared to the prior week.

Overview: Two big trade deals were resolved (China and Mexico/Canada) that locks down deals with our three largest trading partners.  We had very tame inflationary data and solid housing data.  We also had a few bright spots in some regional manufacturing reports as well as a benign Fed Beige Book.

Taking it to the House: The January NAHB Housing Market Index matched market expectations of 75 which is very strong considering any reading above 50.0 is positive. matched market expectations of 75 which is very strong considering any reading above 50.0 is positive.The December New Housing Starts was fantastic, rising 16.9% to an annualized basis of 1.608M units vs est of 1.375M.  Building Permits were 1.416M vs est of 1.468M.

Trade War: The USMCA trade deal (U.S./Mexico/Canada) passed the Senate and is now finally put to rest. trade deal (U.S./Mexico/Canada) passed the Senate and is now finally put to rest. The U.S./China Phase One Trade deal was signed on Wednesday. You can read the official full text here.

Retail Nation: Retail Sales were much stronger than expected with the key Ex-Autos figure showing a MOM gain of 0.7% vs est of 0.5%.  The headline Retail Sales data matched market expectations with a gain of 0.3%, but its really a small beat due to the upward revision in November.

Inflation Nation: The December Consumer Price Index (CPI) YOY headline reading matched market expectations with a gain of 2.3%, which was an increase over November’s YOY pace of 2.1%. The Core (Ex food and Energy) YOY reading also matched expectations of 2.3%.

Manufacturing: The January Philly Fed Manufacturing Index blew the doors off of estimates with a 17.0 reading vs. an expected 3.8.

Jobs, Jobs, Jobs: The November Job Openings and Labor Turnover Survey (JOLTS) was much lighter than expected (6.800M vs est of 7.233M) and was the first time below 7M unfilled jobs since November 2018.

Consumer Sentiment: The Preliminary January reading was fairly strong at 99.1, the market was expecting 99.3.  The one year inflation outlook rose from 2.3% to 2.5%.

What to Watch Out For This Week:

The above are the major economic reports that will hit the market this week. They each have the ability to affect the pricing of Mortgage Backed Securities and therefore, interest rates for Government and Conventional mortgages. I will be watching these reports closely for you and let you know if there are any big surprises.

It is virtually impossible for you to keep track of what is going on with the economy and other events that can impact the housing and mortgage markets.  Just leave it to me, I monitor the live trading of Mortgage Backed Securities which are the only thing government and conventional mortgage rates are based upon.