Housing/Real Estate Market 

Construction spending fell in October: Overall construction dipped 0.8% in October, led by a decline in the multi-family sector. Fortunately, single-family construction ticked up by 1.6%. This is the second consecutive decline in overall construction spending, but recent permit figures suggest that we could see an increase over the next few months.

Los Angeles rents stable in December: Apartment List reports that  rents were flat in December, which was slower than the state or nation. The report cites increased supply due to new apartments built over the past year together with softening demand as residents leave LA for more affordable areas as the primary culprits.

Macro Economy

Labor markets remain in growth mode: U.S. employers added 266,000 jobs in November—a substantial number given the late stage of the cycle and low levels of unemployment. Unemployment also fell to 3.5%, which is a historic low. The pace of growth remains relatively subdued at just 1.5%, but represents ongoing and steady expansion nonetheless. Jobless claims also fell to a 7-month low, supporting the overall tightness of the labor market.

Manufacturing sector still in the doldrums: The ISM Index of manufacturing activity recorded another contraction reading in November, with an overall reading of 48.1 (anything below 50 indicates contraction). Inventory, new factory orders, and expectations for employment all drove the index down last month. However, export orders also dipped as the ongoing trade dispute with China lingers.

Service sector still growing, but more slowly: The ISM’s Index of non-manufacturing activity (services) dipped by 0.8 points in November to 53.9. This level is still consistent with ongoing expansion, but suggests that the economy can expect smaller increases in the fourth quarter. Although current conditions deteriorated, new orders actually ticked up, so we should not expect a major retrenchment over the near term.

Consumers still borrowing: Consumer credit expanded by 5.5% in October as both revolving debt (credit cards, primarily) and non-revolving debt (auto and student loans) both increased. Overall, credit increased by $18.9 billion suggesting that consumers are still responsible for much of the economic growth that the U.S. continues to enjoy.

Trade balance improves in October: Although exports to the rest of the world were down in October, imports fell farther so the trade deficit improved. This suggests that trade may add to GDP growth during the fourth quarter. Notably, service-sector exports, which are less restricted by the current trade scuffle with China, increased last month, which helped to drive much of the improvement. The U.S. also exported more crude oil than it imported.

Factory orders show signs of hope: After two consecutive declines, factory orders improved in October. This provides some hope that although manufacturing has remained in contraction territory for several months, the pace of that decline is unlikely to accelerate over the short run.

Real Estate Finance

Mortgage rates hold steady: The 30-year fixed-rate mortgage (FRM) remained unchanged at 3.68% from the week prior. The FRM is just over 100 basis points lower than the average of 4.75% recorded a year ago.

Mortgage applications decrease from a week earlier: Mortgage applications decreased 9.2% from the week prior even after adjusted for the Thanksgiving holiday. The refinance index decreased 16% from the week prior and 61% higher than a year ago. New purchase applications increased 1% from the week prior but were 24% lower than the same week of last year.

Conforming loan limits increase: Both conforming and FHA loan limits were increased last week. High cost areas will now enjoy a cap of as high as $765,600 in high cost areas and up to $510,400 overall. The FHA also increased their loan limits to $331,760 for most of the country. 

Past Market Minutes
December 2, 2019 - Home prices rose faster in smaller cities, consumer confidence fell
November 25, 2019 - California housing market holds steady in October
November 18, 2019 - Minority homeownership improved in Q3, retail sales rebound in October
November 11, 2019 - LA rents hold steady, factory orders down, mortgage applications dip

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