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Housing – A Tale of Two Cities

Activity in the housing market during September paints a good picture of the inconsistencies stemming from hurricane recovery efforts. Sales of existing homes rose 0.7 percent, the first increase in three months, as the housing market in Houston began to recover. Houston posted a 4.4 percent year-over-year increase. Some of the increase in sales may reflect investors purchasing damaged properties. These sales boost the data, but do not do much for the real home buyer. Prices are already high and investor buying will only boost the prices more. The supply of homes for sale across the county declined 6.4 percent from a year ago. The only sector that reported an increase in listings was for homes priced above $470,000, the most expensive market category.

The new home market is suffering more in the aftermath of the storms. Construction of new homes fell 4.7 percent in September, the largest drop in six months. The South, usually the most active area, reported its slowest pace of building in two years. The immediate activity after the hurricanes has been focused on the repair of damaged homes, which is not captured in the housing data. One caveat is the latest survey of homebuilders’ confidence, which rose to a five-month high. Builders expect buyer traffic and future sales to improve. The six-month sales outlook rose five points to the highest level since 2005.

Other Key Indicators this Week:

Fed Beige Book – The consensus from the 12 regional Federal Reserve Banks reflects an economy that is growing moderately in spite of tight labor markets and low wage pressure.  Most industries have been able to keep wages low by not passing on costs to customers. Other industries, such as construction and transportation, are starting to feel some wage pressures, especially as workers move to storm-damaged areas where the demand is strongest. Overall, the report outlined employment growth as modest, retail spending rising slowly and loan demand mostly stable to modestly higher.

Stocks – The Dow Industrial Average reached its fourth major milestone of the year, closing above 23,000. The rise was fueled by strong third quarter earnings from financial and health care companies. UnitedHealth Group and IBM were two stocks that pushed the index to its record high. A Senate budget approval, talks of tax reform and the lure of higher investment yields continue to push investors towards the stock market.

Strategically for Credit Unions:

The yield curve appears as confused as the Federal Reserve. The spread between the two-year and 10-year Treasury notes shrank to 75 basis points this week, the narrowest in over a year. This is in contrast to the 136 basis points spread reached in December 2016. The short end of the curve is reacting to an 80 percent chance for a rate increase in December, while the long end is concerned that low inflation and rising rates may hurt economic growth.

Sarina Freedland – Senior Investment Officer

Although this information has been obtained from sources we believe to be reliable, we do not guarantee its accuracy, and it may be incomplete or condensed. This is for informational purposes only and is not intended as an offer or solicitation with respect to the purchase or sale of any security. All herein listed securities are subject to availability and change in price. Past performance is not indicative of future results. Changes in any assumption may have a material effect on projected results.