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The housing data continues to confuse

The data this week reflects two very different sides of the housing market. New home sales surged 12.4 percent in July and 31.3 percent from a year ago. The annualized rate of homes sold, 654,000, was the highest level since 2007. The median price of a new home fell 0.5 percent to $294,000, indicating builders are beginning to focus on the much-needed lower priced homes to attract first-time buyers. Sales were strongest in the south, increasing 18.1 percent to the highest rate since 2007. At the other end of the housing spectrum, existing home sales fell 3.2 percent in July. This was the first monthly decline since February. Sales are down 1.6 percent from a year ago. Some of the hottest markets, including California and Denver, were down double digits in the past year. Unlike new home sales, the average price of an existing home rose 5.3 percent.

Supply continues to be the key problem affecting both new and existing home sales. There were 233,000 new homes on the market in July, the lowest number since November. The inventory of existing properties is down 5.8 percent from a year ago. Supply has fallen for 14 straight months. New home sales rely on the ability of the builder to obtain land at the right price, to obtain a construction loan and even on the availability of land itself. Existing home sales, on the other hand, are a direct function of supply and demand. The supply is set, and prices fluctuate to attract buyers. The lack of affordable existing homes for sale has plagued the current housing expansion and made it more difficult for first-time buyers. Existing home sales account for 90 percent of the housing market. So, while the increase in new home sales appears to outweigh the decline in existing home sales, it inaccurately reflects the strength of the housing market.

Other Key Indicators this Week:

GDP – The economy grew 1.1 percent in the second quarter. The initial estimate of 1.2 percent was revised lower due to a higher level of imports. Business inventories declined for the first time since the third quarter of 2011. The bright spot was an upward revision of consumer spending, from 4.2 percent to 4.4 percent.

Durable Goods – Orders were up 4.4 percent in July, the strongest monthly increase since October. Transportation orders accounted for a large portion of the increase, up 10.5 percent. However, the real bright spot in the report was the proxy for business equipment, up 1.6 percent. Following a gain of 0.5 percent in June, this was the first back-to-back increase since January 2015. Business investment has been a weak link in the economy for the past few years, which makes the uptick even more promising.

Strategically for Credit Unions:

The two-year Treasury note finally made a bold move this week. After weeks of comments from Fed members about the need to raise rates, the yield on the two-year note moved to the highest level since June. The 10-year note remained in the 1.50’s, but managed to rise to the higher end of that zone. Federal Reserve Chair Janet Yellen’s speech at the Jackson Hole Economic Symposium did little to sway yields. Yellen said the case for a rate move has strengthened, but did not give any indication of when a move may occur. In the end, after a brief uptick, yields ended the week close to where they began.

Note: Due to the Labor Day holiday weekend, there will be no Behind the Numbers next week. September 9 will feature Behind the Numbers, the Market Overview and Data Report and the CU Rate Survey.

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.

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