Market Watch

New Home Sales rose 6.2% to the best level in 10 years. Following last month’s 18.9% increase, the market was looking for a pull back to something around unchanged; however, new home sales are on fire, producing 685K units on an annualized basis. The Northeast was the standout, up 30%. The Midwest was also strong, jumping 18% while the West was up 6.4%. Even the hurricane ridden South posted a gain of 1.3%. Inventory fell to 4.9 months and the median sales price rose 3.7% to $312,800.

The S&P Case-Shiller National Home Price Index rose .4% to 195.5 in September and now stands at plus 6.2% for the year. This is the 16th month in a row that prices have accelerated. The West remains the leader in price growth but Seattle is still the leader of the pack, up 12.9% year on year. Las Vegas, San Diego, Portland, Tampa, Boston, Denver, Dallas, San Francisco, and Detroit make up the top 10 (in that order). All 20 cities in the larger survey showed annual gains as low mortgage rates, lower unemployment, and a lack of inventory continue to fuel home prices. The FHFA House Price Index was also released, rising .3% month on month and 6.3% year on year keeping in line with the Case-Shiller report.

Consumer Confidence for November jumped to the highest level in 17 years, posting a gain of 3.3 points to 129.5. The present situation rose 1.9 points while future expectations jumped 4.3 points as the biggest driver in this report is confidence in the jobs market. Business conditions were considered “good” and improving with those calling business “bad” falling to 12.7%. The report is certainly positive for housing and retail sales.

Also, just in time for the holidays, Personal Income for October rose .4%, looking cautiously optimistic as we head into year end. Nominal Personal Income rose .5%, another good sign for consumer spending. On that note, Personal Spending remained strong, up another .3% following last month’s .9% rise. Although spending slowed, the next few months will be a critical indicator if trouble is ahead. For now, both income and spending look to be on a positive trend.

Markets are a bit beside themselves at the moment, which makes for dicey trading propositions in both bonds and stocks. In our opinion, both represent poor risk/reward profiles. With the trading world focused on tax reform, our bias is that a deal will get done and it is 90% priced in the stock market. The final outcome will have a lot to do with the market’s reaction, depending on what the final bill looks like that passes. In the event the Republican deficit hawks would not vote for the bill and it fails, stocks will crater for 500 to 1,000 points and the 10 year will move toward 2.10%. For now, 10s remain on the high-side of our recent 2.32-2.42% trading range. We will need to hold the 2.42% level for any chance at relief, otherwise we can expect a larger move to higher rates in the weeks ahead. Bottom line is that we have a high-priced game of chicken going on right now, so be careful out there and lock in your loans.