Number of Renting Households Decline for the First Time Since 2004

Number of Renting Households Decline for the First Time Since 2004:

The 2017 Annual Rent Report prepared by ABODO showed that average Rents rose by 2.4% over the course of 2017.  And for the first time since 2004, the number of households that rent instead of own, dropped.

Citing Harvard University’s Joint Center for Housing Studies (JCHS), ABODO said more than a third of US households are renters, with about $43 million households renting across the US as of the middle of 2017.

ABODO said 2017 marked the first decline, although slight, of renting households in 13 years, citing a JCHS report. The number of renting households had been continuously increasing since 2004.

The decline in renting households in 2017 came as rents rose over the same period. At the end of 2017, one-bedrooms had a national median rent of $1,040, a 2.4% increase. Meanwhile, the national median rent for two-bedroom apartments was $1,252 in December, an increase of 3% from its level in January.

As rents rise, it strengthens demand for home sales as very low mortgage rates and unemployment levels make the cost of owning an appreciating asset far more attractive then throwing away monthly rent payments.

What Happened to Rates Last Week?

Mortgage backed securities (FNMA 3.50 MBS) lost -19 basis points (BPS) from last Friday’s close which caused fixed mortgage rates to move slightly higher for the week.

Overview:  We had another holiday-shortened week with bond trading closed on Monday for New Years Day. Once again we had very strong economic data which did pressure MBS trades lower (higher mortgage rates) but this was mitigated by concern over a looming Government Shutdown (January 19th) and geo-political concerns overseas.
We got the survey data from the U.S. Bureau of Labor and Statistics on Friday, you can read their official report here.

Here is the Tale of the Tape:
December Non Farm Payrolls  148K vs est. of 190K.
November Non Farm Payrolls revised upward from 228K to 252K.
October Non Farm Payrolls revised downward from 244K to 211K.
The number that the bond market pays attention to is the rolling three month average and it is above 200K at 204K.

Average Hourly Wages for December had a monthly gain of 0.3% which matched expectations.
Average Hourly Wages YOY had a gain of 2.5% which also matched expectations.
The national average hourly wage is now $26.63.
The bond market is the most sensitive to this data set and it was right what the market expected.

The national Unemployment Rate remained at 4.1% for the 3rd straight month.
The Participation Rate remained at 6.7%.
This survey data is basically ignored by bond traders.

ISM Services:  The December reading hit 55.9 vs est. of 57.6.  This data set was a miss but it is still above 55.0 which is very strong considering any reading above 50.0 is expansionary.

Manufacturing: The ISM Manufacturing Index for December was stronger than expected (59.7 vs est. of 58.0) and is the 2nd highest reading since March of 2011. ISM Prices Paid (a key measure of future inflation expectations) jumped to 69.0 vs est. of 65.0 and is one of the highest readings on record.

Factory Orders:  The November reading was stronger than expected (1.4% vs est. of 1.1%) and October was revised upward significantly from -0.1% to +0.4%.

The Talking Fed: Cleveland Fed President Loretta Mester (voting member) said she is “o.k” with “three or four” rate hikes next year based upon her economic expectations but will need to see how Tax Reform impacts growth.

We got the Minutes from their last FOMC meeting where they raised their Fed Fund Rate by 1/4 point and showed median expectations of at least 3 rate hikes in 2018. There really were not any “bombshells” in the Minutes as views were generally favorable towards economic growth and the need to flatten out the curve (between inflation and the fund rate, which requires raising the Fed fund rate).

Construction Spending: The November data showed a nice pick up of 0.8% which beat out estimates of 0.5%. However October was revised lower from 1.4% to 0.9%

What to Watch Out For This Week: