Weekly Market Update: Home Price Index, Consumer Confidence, Pending Home Sales

What We Are Watching This Week

  • S&P Case-Shiller home price index (20 cities)
  • Consumer confidence
  • Pending home sales

Highlights From Last Week

  • Housing Starts
  • US Leading Indicators
  • Personal Consumption Expenditure Price Index and Core PCE

The TSX has enjoyed a two-week winning streak and has seen gains in five of the last eight weeks. In the U.S., stock markets also continued their winning streak, the longest since 2017, as investors grew more confident about the economy avoiding a recession. The S&P 500 Index came close to its all-time high from the start of 2022, while the Nasdaq 100 and Dow Jones Industrial Average set new records. Gains in the communication services sector drove this positive momentum, notably Google parent Alphabet and Facebook parent Meta Platforms. Strong performance in the energy sector due to rising oil prices, driven by concerns over Red Sea shipping attacks, also contributed to the upward momentum. The STOXX Europe 600 Index increased by 0.21% in Europe and remained near its one-year high. Major Continental European stock indexes had mixed performance, with France’s CAC 40 declining by 0.37%, Germany’s DAX slipping by 0.27%, and Italy’s FTSE MIB showing modest losses. Meanwhile, the U.K.’s FTSE 100 Index gained 1.60% in local currency. Overall, the markets reflected growing optimism about economic prospects in North America and Europe.

In November, the U.S. Census Bureau reported that new home construction surged by 14.8% as builders responded to robust home-buying demand amidst a shortage of available homes. Housing starts, which measure the number of new construction projects initiated, reached a pace of 1.56 million annually, up from 1.36 million in October. This rate had not been seen since May 2023 but was still lower than the peak of 1.8 million in April 2022. The figures exceeded Wall Street expectations, which had projected a rate of 1.36 million and were seasonally adjusted. Both single-family and multi-family construction showed positive growth in November, with single-family housing starts reaching their highest level since April 2022, rising by 18%. The construction boom was particularly pronounced in the Northeast, where housing starts doubled, while other regions experienced more modest increases. The only decline in single-family housing starts was in the West, with a marginal decrease of 0.8%. Builders, responding to strong demand but also seeking to attract buyers, had lowered prices in November. Additionally, a drop in mortgage rates in mid-December is anticipated to further stimulate housing starts and new home sales in the near future. The Federal Reserve’s signal of multiple rate cuts in 2024 led to a decrease in the 30-year mortgage rate, making home loans more affordable. This development may encourage potential buyers who were previously hesitant, ultimately driving up demand and prompting builders to increase construction activity. In conclusion, the spike in housing starts in November underscores the resilience of buyer demand in the housing market, with the potential for continued growth in the months ahead due to favorable mortgage rate trends.1

Also in November, existing home sales in the United States rebounded, ending a five-month streak of consecutive declines, according to the National Association of REALTORS on Wednesday. Sales increased by 0.8% from October to a seasonally adjusted annual rate of 3.82 million. However, compared to November 2022, sales were down by 7.3%, when they stood at 4.12 million. Regional variations were observed, with sales rising in the Midwest and South but declining in the Northeast and West. All four regions reported year-over-year decreases in sales. The recent weakness in existing home sales was attributed to the buyer bidding process in October, when mortgage rates were at a two-decade high, which impacted closings in November. A turnaround is expected as mortgage rates have significantly dropped in recent weeks. As of December 14, the 30-year fixed-rate mortgage averaged 6.95%, falling below 7% for the first time since August but still higher than the previous year’s 6.31%. Housing inventory at the end of November totaled 1.13 million units, representing a 1.7% decrease from October but a 0.9% increase from the same period last year. Unsold inventory was equivalent to a 3.5-month supply at the current sales pace, down slightly from October but up compared to November 2022. The median price for existing homes across all housing types in November was $387,600, a 4.0% increase from the previous year. Price increases were observed in all four U.S. regions. Overall, the housing market showed signs of recovery in November, driven partly by more favorable mortgage rates, but year-over-year sales remained lower.2

On Wednesday December 20, the Conference Board reported that the December Consumer Confidence Index showed a notable increase, rising to 110.7 (based on a 1985=100 baseline) from a revised 101.0 in November. Two key components of the index drove this improvement:

1.    The Present Situation Index, which assesses consumers’ perceptions of current business and labor market conditions, surged to 148.5 from its November level of 136.5.

2.    The Expectations Index, which reflects consumers’ short-term outlook for income, business, and labor market conditions, saw a significant jump to 85.6, up from a revised reading of 77.4 in November. This increase in expectations brings optimism levels back to those last seen in July of the same year.

Dana Peterson, Chief Economist at The Conference Board, explained that the rise in December consumer confidence was attributed to more positive evaluations of current business conditions and job availability. Additionally, consumers held less pessimistic views over the next six months regarding future business prospects, the labor market, and personal income expectations. This increase in consumer confidence suggests that individuals feel more optimistic about their current economic situation and are more hopeful about the economic outlook in the near future. It can be seen as a positive indicator of consumer sentiment and may have implications for consumer spending and economic growth in the coming months.3

In the latest U.S. Department of Labor report, the number of Americans filing for unemployment benefits increased slightly to 205,000, indicating that layoffs remain deficient during the holiday season and employment opportunities are still readily available. This figure reflects a modest rise of 2,000 claims compared to the revised 203,000 claims in the previous week, below economists’ expectations of 215,000 for the week ending December 16. The number of individuals receiving unemployment benefits from programs remained unchanged at 1.87 million.4

The Conference Board Leading Economic Index (LEI) for the U.S. decreased by 0.5% in November 2023, reaching 103.0 (2016=100). This decline follows a downwardly revised 1.0% decrease in October. Over the six months from May to November 2023, the LEI contracted by 3.5%, a smaller decline than the 4.3% contraction observed in the previous six months from November 2022 to May 2023. Justyna Zabinska-La Monica, Senior Manager of Business Cycle Indicators at The Conference Board, noted that a positive contribution from stock prices primarily drove the November decline in the US LEI, while indicators related to housing and the labor market weakened, raising concerns for the economy. The Leading Credit Index and manufacturing new orders remained relatively unchanged, suggesting a lack of momentum for economic growth in the near term. Despite the ongoing resilience of the economy, as indicated by the U.S. Coincident Economic Index (CEI) and an improvement in consumer confidence in December, the US LEI points toward a potential slowdown in economic activity ahead. Consequently, The Conference Board anticipates a short and shallow recession in the first half of 2024. This suggests that while specific economic indicators may remain positive, there are underlying concerns and risks that could impact the overall economic outlook in the coming months.5

In November, orders for durable goods in the United States surged by 5.4%, marking the largest increase since July 2020 and the second gain in the last three months. This rebound follows a 5.1% decline in the previous month and exceeded economists’ expectations of a 2% rise. Notably, transportation orders, including motor vehicles and aircraft, saw the most significant increase, rising by 15.3%. However, orders for defense capital goods declined by 12%. When excluding transportation, orders increased by 0.5%, while excluding defense, they jumped by 6.5%. Despite this positive development, economists remain cautious, awaiting sustained improvement in the manufacturing sector before confirming an upward trend.6

In November, personal income in the United States saw a monthly increase of $81.6 billion, equivalent to a 0.4% rise. Disposable personal income (DPI), which factors out personal current taxes, also increased by $71.9 billion, or 0.4%. Personal outlays, which include personal consumption expenditures (PCE), personal interest payments, and personal current transfer payments, grew by $47.8 billion (0.2%), with consumer spending specifically rising by $46.7 billion (0.2%). The annual PCE and Core PCE (excluding food and energy) are running at 2.6 and 3.2, respectively. Personal savings for the month amounted to $839.8 billion, and the personal saving rate, which measures personal savings as a percentage of disposable personal income, stood at 4.1% in November. The increase in consumer spending was primarily driven by higher spending on services, particularly housing and utilities, as well as food services and accommodations. However, this was partially offset by decreased spending on goods, with gasoline and other energy goods experiencing the most significant decline.7

 WKYear to Date
Dow0.28%12.97%
  
S&P5000.75%23.83%
  
Nasdaq1.21%43.25%
  
S&P400 Mid-cap1.53%14.70%
  
Russell2.46%15.48%
  
TSX1.70%7.70%
  
Oil3.00%-8.40%
   

1. https://www.census.gov/construction/nrc/pdf/newresconst.pdf

2. https://www.nar.realtor/newsroom/existing-home-sales-expanded-0-8-in-november-ending-five-month-slide

3. https://www.conference-board.org/topics/consumer-confidence

4. https://www.dol.gov/ui/data.pdf

5. https://www.conference-board.org/topics/us-leading-indicators

6. https://www.census.gov/manufacturing/m3/adv/pdf/durgd.pdf

7. https://www.bea.gov/data/personal-consumption-expenditures-price-index-excluding-food-and-energy

Important Information:

Warren Gerow is an independent investment wealth consultant to Sightline Wealth Management.

Sightline Wealth Management LP (“Sightline”) is an investment dealer and is a member of the Canadian Industry Regulation Organization (CIRO) and the Canadian Investor Protection Fund (CIPF). Sightline provides management and investment advisory services to high-net-worth individuals and institutional investors.

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The opinions and information contained in this article are those of Sightline Wealth Management (“Sightline”) as of the date of this article and are subject to change without notice. Sightline endeavors to ensure that the content has been compiled from sources that we believe to be reliable. The information is not meant to be used as the primary basis of investment decisions and should not be constructed as advice. Each investor should obtain independent advice before making any investment decisions.

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