ELLIOTT D. POLLACK & Company
FOR IMMEDIATE RELEASE
November 23rd, 2015
The Monday Morning Quarterback
A quick analysis of important economic data released over the last week
It was a busy week for economic news. Overall, the news was good for both the U.S. and Arizona. Here is the rapid fire list:
Leading indicators are up. Consumer prices are under control. Mortgage interest rates are stable. Industrial production is slightly down. Housing permits are up. Employment in the state and its major cities are also up. Unemployment in the state is down.
New housing permits in Greater Phoenix are also way up. This is true despite the fact that new home builders seem to be aimed at the move-up market rather than the entry market (a strategy they ought to revisit).
Not a bad week at all!
U.S. Snapshot:
- Leading indicators for the U.S. increased 0.6% in October following the 0.1% decline in September. The outlook seems to be more optimistic despite an uninspiring third quarter.
- Industrial production declined by 0.2% for the second consecutive month in October. The index for manufacturing increased 0.4% while the index for mining (oil and other commodity related) fell 1.5%.
- Capacity utilization dropped 0.2 percentage points and now stands 2.6% below its long run (1972-2014) average.
- Consumer prices for all urban consumers (CPI-U) increased 0.2% in October (seasonally adjusted). The index now stands 0.1% over a year ago. The index for all items less food and energy rose 0.2% and now stands 1.9% above a year ago. This is within the range the Fed is aiming for.
- 30 year fixed-rate mortgages averaged 3.97% for the week ending November 19. This is slightly down from 3.98% the previous week and 3.99% a year ago.
- Privately owned housing units authorized by building permits rose in October. Permits are now 4.1% above September and 2.7% above a year ago. While single family declined 2.4% from a month ago, they are still 9% above a year ago.
Arizona Snapshot:
- The unemployment rate in the state declined from 6.3% in September to 6.1% in October. A year ago, the statewide unemployment rate was 6.6%. Nationally, the unemployment numbers were 5.1% in September, 5.0% in October and 5.7% a year ago.
- The unemployment rate in Greater Phoenix in October was 5.2% and Greater Tucson posted a 5.5% rate.
- Arizona nonfarm employment grew at a faster rate than normal for an October. Jobs in the state grew by 2.3% over the last year (60,300 jobs). Educational and health services as well as professional and business services lead the way. Greater Phoenix grew by 48,300 jobs over the last year (2.6%) and Greater Tucson grew by 7,400 jobs (2.0%).
- R.L. Brown reported another impressive month for the new home market. There were 1,254 new home permits issued in October, a 76.6% increase from the 710 permits issued last October. Year to date, permits are up 46% with 13,547 permits issued through October compared to 9,251 for the similar 2014 period. Existing home sales were 79,659 year to date compared to 70,599 a year ago. This is a 12.8% gain.
- ASU’s monthly report on the Greater Phoenix housing market had more good information. For single family homes, the over $500,000 segment was up 21%. But, this was due to a big gain in the $500,000-$2,000,000 market while the over $2,000,000 segment dropped 33%. There was a loss of market share in the under $200,000 segment due to poor supply.
- The average size of a new home was 2,494 square feet while the average size of a resale was 2,036 square feet. This gap (new homes 22% larger than the normal resale) suggests that homebuilders have shifted away from the entry level market toward the “move up” market. This also helps explain the relatively higher total new home price (31% higher than that of resales) while the average price per square foot is only 3% higher.
- While only a small number of homebuilders have so far delivered product to the first time market, others are planning to do so. This would be a positive for the housing market as first time home buyers will be entering the market in mass over the next few years. Even now, the biggest problem faced by the housing market appears to be the mismatch between supply and demand in the below $300,000 market.
