Tag Archive for 'Wells Fargo Securities Group'

Wells Fargo Reports: Housing Starts Give Back Much of October’s Spike

Housing starts tumbled 18.7 percent in November but October’s previous reported 25.5 percent spike in starts was revised higher to 27.4 percent. Permits fell 4.7 percent but remain at a healthy 1.2-million unit pace.

Mild Fall Weather Leads To Volatile Monthly Data

Housing starts tumbled 18.7 percent in November, which was larger than consensus estimates. The prior month’s gain was revised higher, however, and permits held up reasonably well. Much of the volatility in starts has been in the multi-sector, which saw starts surge 76 percent in October and fall back 45.1 percent in November. The past three months have been unusually volatile for multifamily starts. Permits have not moved around nearly as much.

Unseasonably mild weather also likely played a role in October’s stronger housing numbers and November’s apparent payback. Homebuilding normally declines in the fall as the holidays approach and temperatures turn cooler. This year’s unseasonably mild fall weather, which led to a plunge in utility use, allowed work to begin on more single-family homes than usual in October, which caused the seasonally adjusted starts number to surge 10.5 that month. On a non-seasonally adjusted basis, single-family starts rose just 7.9 percent.

The expectation of rising interest rates may have also been a factor in October’s surge in new construction. Apartment developers likely rushed to 2.0 lock in financing before the presidential election and many home buyers likely signed purchase contracts and locked in mortgage rates ahead of the 1.6 Fed’s widely anticipated hike in the federal funds rate that finally took place this past week.

With demand pulled forward, starts were primed for a fall in November. Overall starts fell 4.1 percent during the month and starts of projects with 5 units or more tumbled 43.9 percent. With building activity now in its 0.8 seasonally slow period, we feel the year-to-date data provide best measure of new home construction. Overall housing starts are running 4.8 percent 0.4 ahead of their year ago pace, while single-family starts are up 9.6 percent. Year-to-date multifamily starts are down 3.8 percent. All are close to our forecast for 2016, published in our monthly housing report.

Looking Ahead 90

Housing permits fell 4.7 percent in November to a still solid 1.201-million unit pace. Overall permits are running slightly below their trailing three-month average but are still 10.2 percent higher that starts. The entire
gap is in multifamily units, where the three-month moving average of starts
is running a staggering 72.4 percent below the three month average of permits. Some rebound in multifamily starts is likely in coming months. Single-family starts are in the opposite position, with starts running ahead
of permits, both for the month of November and on a three-month moving average basis. The net result is that single-family starts are likely to fall off
in coming months, despite yesterday’s surge in homebuilder confidence.

Source: U.S. Department of Commerce, National Association of Home Builders and Wells Fargo Securities

Wells Fargo Reports: Construction Spending Disappoints in June

Wells_Fargo_Securities_logoConstruction spending fell an unexpected 1.8 percent in June, but the previous month’s data was upwardly revised. Single-family outlays posted its second-straight negative reading. Nonresidential was also weak 

Single-Family Adding to Negative Housing Reports

 The often-revised construction spending monthly headline unexpectedly fell 1.8 percent in June, to a $950.2 billion annual pace. The decline was broad-based showing weakness in single-family, nonresidential and public state & local spending. Single-family outlays fell 1.4 percent on the month and add to the rising number of housing reports that are pointing to a weaker-than-anticipated housing recovery.

Power Outlays Still Weak

 Private nonresidential spending fell 1.6 percent with power still showing weakness following the production tax credit.

 Although the overall decline is disappointing, the monthly figures for multifamily and structure outlays were better than the BEA’s conservative estimate. This means that based on today’s report, we do not expect construction to detract from second quarter real GDP in future revisions.

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Wells Fargo Reports: Employment Costs Accelerate in Q2

Wells_Fargo_Securities_logoPropelled higher by solid gains in wages & salaries and benefit costs, the Employment Cost Index (ECI) increased a stronger-than-expected 0.7 percent in the second quarter. The Fed will notice this pickup. 

Wages & Benefit Costs Jump

Following a soft Q1 performance, total employment costs accelerated in Q2, rising at the fastest quarterly pace since Q3 2008. Year over year, ECI rose at a 2.0 percent pace, consistent with the run-rate over the past four years. Private wages & salaries quadrupled the gain in Q1, rising 0.8 percent on the quarter. Benefit costs jumped 1.0 percent, bringing the year-over-year rate to 2.5 percent, its highest pace since Q1 2012.

An Inflection Point?

The U.S. labor market has improved in the first half of the year with a stronger pace of hiring and an unemployment rate moving closer to full employment. Despite this improvement, the Fed continues to highlight wage inflation’s below-trend performance as evidence that labor market slack is still plentiful. While not currently problematic, Q2’s ECI performance will require the Fed to reassess its labor market and inflation assessment.

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Wells Fargo Reports: Construction Spending Continues to Bounce Back

Wells_Fargo_Securities_logoConstruction spending rose 0.6 percent in August, and the prior month’s gain was revised up to 1.4 percent. The data point to solid gains in residential and nonresidential construction during the third quarter.

The Housing Recovery Remains On Track

  • Fears that this past spring’s sudden jump in mortgage rates would derail the housing recovery appear to be misplaced. Private residential construction spending rose 1.2 percent in August, with spending for new multifamily projects surging 3.2 percent, and single-family construction rising 1.6 percent.
  • Improvements, 40 percent of total residential construction, remain restrained, following stronger gains earlier this year.

Nonresidential Construction is Showing Signs of Life

  • Private nonresidential construction spending rose just 0.1 percent in August, following a 3.7 percent jump in July.
  • Private nonresidential spending through the first two months of the third quarter is now up at an 11.4 percent annualized rate. Manufacturing accounts for about 40 percent of the increase, led by gains in industries tied to oil & gas exploration and chemicals. Office and multi-tenant retail are also improving.
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Wells Fargo Reports: New Home Sales Rise Solidly in June

Wells_Fargo_Securities_logoNew home sales rose 8.3 percent in June, helping offset earlier disappointment in existing home sales. While new home sales for the prior two months were revised slightly lower, June’s pace still topped most estimates

By Mark Vitner, Senior Economist and

Anaika R. Khan, Senior Economis

Builders Are Having a Tough Time Keeping Up With Demand

New home sales rose a larger-than-expected 8.3 percent in June to a 497,000-unit annual pace. Sales for the prior two months were revised down by 38,000 units, but both months still show sequential increases, indicating that new home sales are continuing to build momentum.

June’s strong gains in new home sales may allay some concerns that higher mortgage rates are undermining the budding housing recovery. Earlier this week, sales of existing homes posted a 1.2 percent drop for June. The report raised fears about the prospects for first-time home buyers. We noted then that most of the drop in existing sales occurred for homes priced below $100,000. A big part of the drop in existing sales also appears to have been due to a drop in investor purchases, distressed sales and cash purchases. The low end of the existing market has been dominated by institutional investors bent on buying up bargain-priced homes and converting them into rental properties. Most of the desirable existing properties at the low end of the market are now gone, which is good news for home builders. Moreover, the exit of institutional buyers should be good news for first-time buyers, many of which were having difficulty competing with cash offers.

The latest new home sales data seem to confirm these trends. Sales rose in every region of the country except the Midwest, and in every price segment except the $300,000 to $399,000 range, where they fell marginally. Sales of homes priced under $150,000 rose marginally in June and accounted for 10 percent of sales, which is the same percentage they accounted for in the prior month. While the share has dropped from 16 percent in 2011 and 13 percent in 2012, much of the drop is due to the growth in sales in the West, where lot prices and homes tend to be more expensive. The West has seen its share of sales rise from 23.5 percent in 2011 to 26.4 percent through the first six months of this year.

Rising mortgage rates will clearly have an impact on sales. Mortgage purchase applications fell 2.1 percent in mid-July. The figures also show that the contract interest rate on 30-year fixed rate mortgages has risen by nearly 75 basis points over the past year, with much of the gain occurring in the past two months. But even with these increases, mortgage rates remain near historic lows. One way that buyers adapt to rising mortgage rates is to scale back the size of the home they buy. This would be consistent with the small drop in the share of sales accounted for by homes priced over $400,000 during the past two months.

We expect new home sales to hold up relatively well in coming months. Buyer traffic has been strong and builders are having a tough time keeping up with demand. While overall inventories are up 10.3 percent, inventories of completed homes are at all-time lows and, at 3.9 months, overall inventories are lower relative to sales than any time since October 2004.

Source: U.S. Department of Commerce, NAHB, Mortgage Bankers Association and Wells Fargo Securities, LLC

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