Market News – Week of July 30th, 2017

BROAD, STEADY GROWTH:

The U.S. economy, as measured by Gross Domestic Product, grew at an annual rate of 2.6% in the second quarter of the year, according to the U.S. Commerce Department.  Since emerging from the 2009 recession, growth has averaged 2.1%.  Consumers increased spending by 2.8%.  Business spending figures also showed strong growth.

CALM SEAS:

Stock markets didn’t move much this past week.  The S&P 500’s biggest daily change was 0.29%.  For the week, the S&P 500* decreased 0.02% (up 10.42% for the year).  The MSCI All Country X US* increased 0.33% (up 16.89% for the year).  The Barclays Global Aggregate Bond Index* decreased by 0.21% (up 5.63% for the year).  The HFRX Global Hedge Fund Index* increased 0.11% (up 3.53% for the year).

CONTINUED HOUSING HEALING:

Freddie Mac tracks single-family home owners who are in serious delinquency, defined as those whose mortgage loans are three monthly payments or more past due.  The rate of serious delinquency in June dropped to 0.85% from 0.87% in May.  This is now the lowest this rate has been since April 2008.  This rate topped out at 4.2% in February 2010, when the healing began.

DEBT CEILING DRAMA:

Watch out for this one.  According to U.S. Treasury Secretary Mnuchin, the U.S. government can finance itself through September.  He recently warned, however, that there is a cost to delaying an increase in the debt ceiling.  The politics surrounding this may cause some trauma in the markets if it gets too loud.

SMALL HOMES:

For the first time since 2009, the median size of a new single-family home shrunk in 2016.  It decreased by 2% to 2,422 square feet.  This likely reflects rising demand from first-time home buyers and buyers of entry-level homes.  In the first three months of this year, 854,000 new-owner households were formed compared with 365,000 new-renter households.  That is the first time in ten years that there were more buyers than renters.  Up to this point, lackluster demand among younger buyers has been a main factor holding back the housing recovery.  Young people have delayed buying homes due to tight credit, high student loan balances, lack of confidence in the job market and other factors.  A large group of renters are now entering their 30s, marrying and having children, and need more space.  Credit also appears to be loosening.  Now all these people need homes, and so home builders, for years focusing on larger more profitable homes, appear to be accelerating to the demand for more affordable, smaller, starter homes.

References:

CONTINUED HOUSING HEALING:  http://www.calculatedriskblog.com/2017/07/freddie-mac-mortgage-serious.html
BROAD, STEADY GROWTH: https://www.wsj.com/articles/u-s-gdp-advanced-2-6-in-second-quarter-1501245395; https://blogs.wsj.com/briefly/2017/07/28/second-quarter-u-s-growth-at-a-glance/?mod=cx_picks&cx_navSource=cx_picks&cx_tag=contextual&cx_artPos=2#cxrecs_s
SMALL HOMES:  https://blogs.wsj.com/economics/2017/06/05/new-houses-get-smaller-as-first-time-buyers-move-into-the-market/?mod=cx_picks&cx_navSource=cx_picks&cx_tag=contextual&cx_artPos=4#cxrecs_s; https://www.wsj.com/articles/millions-of-young-people-shut-out-of-the-housing-market-1496836800