Over the past year the two weakest areas of the economy have been manufacturing and housing. The former is dealing with headwinds from the trade war and slowing economic growth overseas, while the latter appears to have only been experiencing a temporary correction. The brighter real estate assessment is due in part to the fact that rising mortgage rates weighed heavily on home sales in 2018, a hindrance that has dissipated now that the Fed has reversed course on monetary policy. In fact, existing home sales jumped after officials cut rates for the first time in more than a decade, and two reports out this week suggest that momentum continues to shift to the upside. For example, privately-owned, single-family housing starts in September grew by 0.3 percent to 918K units, according to the Census Bureau. That was the highest print since January and helped by a 7.1 percent spike in starts in the southern region of the country.
As for building permits, this measure of future construction activity also firmed last month, with the single-family component rising to the best level since February 2018. Looking ahead, homebuilder confidence rose in October to a 20-month high, according to the NAHB, with optimism improving to the best level since 2014 in the southern region of the country. Survey respondents’ opinions of current and future sales conditions improved markedly this month, as did the gauge of prospective buyer traffic. NAHB chairman Greg Ugalde, added that “the housing rebound that began in the spring continues, supported by low mortgage rates, solid job growth and a reduction in new home inventory,” although NAHB chief economist Robert Dietz cautioned that “builders continue to remain cautious due to ongoing supply side constraints.” Additional help for the housing market in transitioning from being a headwind for the economy to being a tailwind may come from the Federal Reserve again at the end of this month when officials are expected to cut rates by another 25 basis points. Current market pricing implies an 88.2 percent chance of this occurring, along with a nontrivial 20.8 percent probability of a similar cut in December.
Sources: Econoday, U.S. DoC, NAHB, FRBSL