MORE EVIDENCE OF A U.S. HOUSING TOP, AS RATES RISE
• True, some of the recent housing data could be distorted by weather effects. But U.S. housing starts fell -5.3% m/m in Sep, and are up only slightly y/y. Not all the news was bad, with single-unit permits up +2.9% m/m. However, weekly mortgage apps for purchase have also flattened recently, and declined -5.9% w/w in mid-Oct.
• This matters because housing, as an interest-rate-sensitive sector, provides a window into how monetary policy is affecting the U.S. economy. A flattening housing profile should be notable to the Fed, especially if it is accompanied by flattening auto sales (which are also interest-rate sensitive).
• A Fed hike in Dec 2018 is still a good bet, reflecting the recent hawkish language from FOMC members. Monetary policy makers can dismiss the Sep data as hurricane-impacted, if they want to. But we continue to look for a Fed pause in 2019, which should allow housing to resume its 2 steps forward, 1 step back profile given the solid U.S. labor market. Still, it’s tough to believe housing will be a significant driver of growth going forward, removing some upside from the U.S. picture overall.