Weekly Economic Update-Bulls And Bears

Americans may be going a little wobbly in their attitudes toward housing if February’s National Housing Survey is correct. The survey and the resulting index Fannie Mae constructs from some of the results, show less enthusiasm about the wisdom of buying and selling coupled with doubt, or maybe hope that prices will continue to rise.

In an interview with Barron’s, economist Mark Zandi expresses no such doubt. He is bullish on the housing market.

Americans’ attitudes toward housing turned a tad bearish in February, although what passes for pessimism in some quarters might be good news in others. Fannie Mae said its Home Purchase Sentiment Index (HPSI) turned south, erasing strong gains in January.

The HPSI distills six questions (from more than 100 asked in the company’s National Housing Survey) to a single number. The survey asks consumers about their views on housing, the economy, and their personal finances. The index fell 3.7 points in February, returning to its December level of 85.8, and was down 2.5 points from a year earlier.

The net positive answers about whether it is a good time to buy a home fell 5 percentage points to 22%, a loss of 18 points over the last year. “Yes” responses to the same question regarding selling dipped by 2 points on net, but still outweighed the “No’s” 63% to 27%.

Fannie Mae’s chief economist Doug Duncan said the recent volatility in the index results from consumers feeling the first effects of the new tax law in their take-home pay while the stock market turbulence and consumers’ unease over rising interest rates weigh in the opposite direction.

The questions that prompted the largest increase in negative responses were those about house prices. The net of those who expect prices to continue climbing over the next six months fell seven percentage points to 45%. Among those who still expect appreciation, the average increase expected fell from 3.7% to 3.3%. This isn’t necessarily a negative for everyone. If consumers anticipate home prices might stabilize, the answers about buying could soon change.

Bullish Explanation

Barron’s recently questioned Moody Analytics chief economist Mark Zandi about his upbeat attitude toward housing. Zandi bases it, in part--as you might guess--on inventories. He estimates the current annual production of new housing, including single and multi-unit and manufactured housing at around 1.3 million units.

This is still very low relative to demand which includes the sum of household formation as well as replacements for housing lost to natural disasters and deterioration. Another wrinkle; there are many Boomers with lots of cash who are thinking about retirement. This puts second homes in short supply as well. Overall, Zandi puts the underlying demand at 1.6 million units per year, leaving a gap of 300,000 units and suggests an ongoing strong market.

03.09.2018

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