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Market Minute - April 18, 2017

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Housing/Real Estate Market

California housing market essentially flat in March:
The statewide sales of existing homes increased 1.6% year-over-year, and increased 0.3% from the previous month.  Home prices maintained their strong growth across the state, as the statewide median price increased 8.9% in March 2018 from the same month of last year.  It reached the highest level since August 2017, and recorded the largest year-over-year gain since January 2016.
 
Existing home sales up 1.1 percent month over month:
inventory and affordability constrained sales form last year. National Association of Realtors® reports that total transactions rose to 5.6 million in March. Sales remain 1.2 percent down year-over-year. Inventory is up 5.7 percent to 1.67 million units, but remains 7 percent down year over year (1.8 million), and has fallen again for the 34th consecutive month.  Unsold inventory is at a 3.6-month supply at the current sales pace (3.8 months a year ago). These figures indicate that issues underscoring California's housing market are emerging in the nation at large.

Some relief from starts and permits:
starts up 1.9% month over month and up 10.9% year over year, permits up 2.5 percent month over month and up 7.5% year over year.  Census Bureau reports that private starts were at 1,319,000. The three-month moving average for single family homes is up 8% year over year, while volatile multi-family starts were down 23.7 percent. Residential permits were reported at 1.35 million of which 845000 were for single family (down 5.5% month over month), multi-family units up to 473,000.

Builder's Housing Market Index remains strong given demand,
but downward pressure from trade costs and lack of land emerges. National Association of Home Builders (NAHB) reports that the HMI index for march is down one point at 69 from last month (any value above 50 indicates more builders view conditions as good).  “However, builders are facing supply-side constraints, such as a lack of buildable lots and increasing construction material costs. “Tariffs placed on Canadian lumber and other imported products are pushing up prices and hurting housing affordability.”

Nonresidential construction less rosy:
The Architectural Billings Index, which is a measure of current orders for nonresidential construction projects dipped in March. It remains in expansion territory, but this decline suggests that the pace of growth has begun to moderate. That said, favorable tax rules under the Tax Cuts and Jobs Act should help to bolster new facilities construction as the cycle progresses.
 


Macro Economy

Small Business Optimism near record highs:
finding qualified workers reported as biggest problem. The National Federation of Independent Business (NFIB) reported its index at 104.7 down slightly from February but remaining in record high territory. Owners reported a record high average positive employment change per firm of .36 workers. Twenty-one percent reported finding workers as the most important problem - displacing taxes for the first time since 1982. Thirty-five percent of owners reported that they couldn't fill job openings. Strong indications that we are approaching full employment and wages could start rising soon.

Leading Economic Index (LEI) suggests more growth: The Conference Board’s LEI has posted consecutive gains in the first 3 months of 2018 suggesting that the economy remains on a solid footing as we head into the second quarter. Many analysts note that the firming economy will provide the conditions necessary for the Federal Reserve to continue their normalization of short-term interest rates, which means that the 30-year mortgage rate will continue to rise gradually as well.

California unemployment at record lows since the recession, gained most jobs in the country. The Bureau of Labor Statistics reports that California gained 321,000 jobs up 1.9% from last year. Unemployment dropped to 4.3 percent the lowest recorded since 2007. The CA unemployment rate at this point last year was at 5.0 percent rate. Twelve other states also reached similar all-time lows in unemployment. The state has seen job growth slow noticeably in recent months, with February’s gain revised down to essentially flat while the state actually shed jobs in March. We will be tracking this indicator very closely in coming months.

Unemployment claims low, decreased slightly from last week.
Department of Labor reports initial claims at 232,000 jobs down 1000 from last week. The four-week average remains flat at 231,250. Low levels of claims indicate few layoffs and a strong labor and economic market.
Retail sales up 4.5 percent year-over year: up .6 percent from last month. Census reports sales reaching $494.6 billion sales up, 4.5 percent year over year. Retail sales remain strong for this part of the market cycle.

Factory sector provides signs of optimism: industrial production rose by 0.5% last month as the nation’s manufacturing sector begins to build momentum. In addition, inventory building has accelerated as well suggesting that the industrial sector should help to boost GDP growth during the first quarter.



Real Estate Finance

Mortgage applications up 4.9 percent from last week:
average contract rate at 4.66 percent, up slightly according to Mortgage Bankers Association weekly survey. The 30 year fixed interest rate unchanged at 4.5 percent still at the bottom range of March/April levels, but they may move slightly higher as bond markets are under slight pressure from macro forces.

Delinquencies and foreclosure starts mixed as Hurricane effects wash out: the 30 year fixed is at 4.5%. The percent of loans delinquent decreased 13.2% in March compared to February, but increased 3.1% year-over-year. The total U.S. mortgage delinquency rate (loans 30 or more days past due, but not in foreclosure) was 3.73% in March, down from 4.30% in February. The percent of loans in the foreclosure process decreased 3.2% in March and were down 29.3% over the last year.  The number of delinquent properties, are up 81,000 properties year-over-year, and the number of properties in the foreclosure process is down 127,000 properties year-over-year. No large patterns visible from these numbers.


  

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