Camelot Portfolios Talking Points

2016 Housing Market Review

The housing market in 2016 continued to show positive signs in a once battered industry. It has been 8 years since the lowest point, but housing starts in the US have climbed to 1.23 million new starts in the month of December (US Census Bureau).  Compared to 2015, housing starts rose an average of 4.9 percent year over year (Economics). The median sale price rose 4 percent year over year to $232,000 (Kusisto).

Diving deeper into the statistics, the South region makes up the majority of new housing starts at 572 thousand (US Census Bureau).  The largest year over year growth in new housing starts in December are the Midwest and West regions at 13.4 and 13.5 percent, respectively (US Census Bureau).

Beyond the numerical statistics of new houses, the size and the amount of features new homes have given indications into why the substantial increase in prices over the past decade. An average new house has well over 2500 square feet with a lot size well over 8500 square feet (US Census Bureau). Compared to even a decade ago, home owners prefer a large house with less land. The average home in 2000 was 2000 square feet with 9000 square feet (US Census Bureau). With prices hovering around where they were a decade ago, this has added value on a price per square foot basis.

There are other factors beyond the size of the home but many indicators are driven by the dimensions of the house or sales volume within a metropolitan area. The Case-Shiller national home index tracks the volume of residential real estate in the US which has now crossed its peak from 2007. This indicates metropolitan cities are returning to prices seen in the mid 2000’s. Today the index stands at 185.06, and the prior peak of the index was 184.06 in September 2006 (S&P indicies).

It has been a slow and steady recovery from the trough in 2009-10, and the housing market continues to show consistent growth. Although the housing market continues this march upward, outside factors will likely continue to pressure this industry. The Fed and the financial industry are likely to continue to raise nominal interest rate in 2017 from 4 percent to 4.5 percent (Kusisto). This potential 50 basis point jump would add an additional 720 dollars per year to a new $200,000 30-year loan. With this possibility of a rise in interest rates, it is difficult to see the same 4 percent growth in housing year over year that the US has experienced over the past 5 years.

Fed policy for 2017

With 2016 in our rearview mirrors, 2017 may be just as interesting for monetary policy. Over the past year, the Federal Reserve Bank tiptoed around the possibility of hiking short term interest rates. The mixed signals in inflation and growth indicators curtailed the efforts by the Fed to have two or more hikes in 2016 (Oyedele). Since the December rate hike, Mrs. Yellen has started to point towards a hawkish stand in raising rates in 2017. Last week, the chair met with the Commonwealth Club in San Francisco in a Q&A session (Oyedele). She mentioned a couple of times the expectation to raise interest rates a few times this year (Oyedele). This coincides with her arguments to return towards the natural rate of inflation of 3 percent (Oyedele).

With only a month into 2017, the Fed is likely to collect data from the first couple of months before they make a decision. The next FOMC meeting is next week on January 31 and February 1. The current targeted short term interest rate is .75 percent (Economics).

 

Compiled by the Camelot Portfolios Investment Committee

Darren Munn, CFA, Chief Investment Officer

Sarah Berndt, Portfolio Manager

Eric Kartman, Research

Matthew Moses, CAP®, President

Drew Steinman, CPA, Trader/Research

Frank Echelmeyer, MBA, CKA®, Advisor Consultant

-for Broker/Dealer and RIA use only-

 

References

Bloomberg . Economic Calendar. 2017. 2017.

Economics, Trading. Trading Economics. January 2017. January 2017.

Kusisto, Laura. U.S. Existing Home Sales Fell 2.8% in December. January 2017. 2017.

Oyedele, Akin. The Fed is close to its goals and expects to hike rates 'a few' times this year. January 2017. 2017.

S&P indicies. S&P CORELOGIC CASE-SHILLER 20-CITY COMPOSITE HOME PRICE NSA INDEX. January 2017. 2017.

US Census Bureau. Press Release. 19 January 2017. 2017.

 

Disclosure

 

       Past performance may not be indicative of future results. Therefore, no current or prospective client should assume that the future performance of any specific investment, investment strategy (including the investments and/or investment strategies recommended by the adviser), will be profitable or equal to past performance levels.

       This material is intended to be educational in nature, and not as a recommendation of any particular strategy, approach, product or concept for any particular advisor or client.  These materials are not intended as any form of substitute for individualized investment advice.  The discussion is general in nature, and therefore not intended to recommend or endorse any asset class, security, or technical aspect of any security for the purpose of allowing a reader to use the approach on their own.  Before participating in any investment program or making any investment, clients as well as all other readers are encouraged to consult with their own professional advisers, including investment advisers and tax advisors.  Camelot Portfolios LLC can assist in determining a suitable investment approach for a given individual, which may or may not closely resemble the strategies outlined herein.

       Some information in this presentation is gleaned from third party sources, and while believed to be reliable, is not independently verified.  A34