Vital Signs: Can Nerves Be Calmed about Housing?

On tap: A two-day monetary policy meeting by the Federal Reserve, February housing starts and existing home sales, and more

The financial markets are twitching over every new piece of information about the housing market and the unfolding demise of the subprime mortgage market. So even though the upcoming week isn't chocked full of economic reports, the markets will be paying close attention to the data as housing dominates the calendar.

More evidence that home sales are stabilizing would be welcome news. A solid number would help calm some nerves in the face of daily reports surrounding bad mortgages and the possible impact rising delinquencies could have on demand via tighter lending standards. A weak number would likely get partially discounted for weather related reasons, but it will only make investors more nervous about the upcoming spring results.

Home builders seem to think conditions are improving. Look for the March Housing Market Index figures to see if builder sentiment improves some more. Even if demand holds up and builders express more hope, there is still the matter of huge inventory of unsold new and existing homes on the market. While builders have pulled back on new construction, there are still a lot of new homes hitting the market each month. That points to lower prices, more kitchen upgrades, or new cars thrown in by builders to clear inventories (see BW Online, 2/11/07, "Out of the Basement for Housing").

The Federal Reserve meets to set monetary policy on Mar. 20-21, but don't expect a move in interest rates. Instead, focus on the post-meeting press release. After the January meeting, the central bank said "recent indicators have suggested somewhat firmer economic growth and some tentative signs of stabilization have appeared in the housing market." Since then, the economic data have turned softer, which could lead to a more reserved view of conditions in the Mar. 21 press release. Fed watchers will also be looking to see if the Fed dials down its hawkish stance on potential inflation pressures in light of recent data.

Here's this week's economic calendar, from Action Economics.

Economic Reports
Report Date Time For Median Estimate Last Period
Housing Starts (million, annual rate) Tuesday, Mar. 20 8:30 a.m. February 1.46 1.41
Leading Indicators Thursday, Mar. 22 10 a.m. February 0.0% 0.1%
Existing Home Sales (million, annual rate) Friday, Mar. 23 10 a.m. February 6.32 6.46


Monday, Mar. 19, 4 a.m. EDT - U.S. Treasury Deputy Secretary Robert Kimmitt to speak about globalization at the "Globalization and the 21st Century World Order Conference" in Berlin.

HOME BUILDERS SURVEY - Monday, Mar. 19, 1 p.m. EDT

The National Association of Home Builders and Wells Fargo bank issues the March Housing Market Index. The report measures housing market conditions by surveying builders on current sales, buyer traffic through model homes, and expectations for sales during the next six months. Builders are becoming less pessimistic about the housing market. The overall reading was 40, the strongest reading since June of 2006. The January reading was 35, up from 33 in December and November. A reading below 50 indicates that more builders view conditions as poor than good.

Builders have high hopes for this spring. The index tracking expectations for the coming six months hit 55, from 48 in January. The reading for current sales improved to 42, from 36 in the prior month. However, respondents are not reporting a great uptick in buyer traffic. The index for traffic of prosective buyers only reached 31, from 26 in January. This last component also ran far below the other two during the boom. Even so, the prospective buyers index has improved less than current and expected sales, which clouds the optimistic outlook of builders.


Tuesday, Mar. 20, 9 a.m. EDT - The Federal Reserve's Federal Open Market Committee holds a two-day meeting to discuss monetary policy. An announcement by the central bank will come on Wednesday around 2:15 p.m. Fed watchers fully expect the Fed will keep its short-term interest rate at 5.25%.

ICSC-UBS STORE SALES - Tuesday, Mar. 20, 7:45 a.m. EDT

This weekly tracking of retail sales, compiled by the International Council of Shopping Centers and UBS bank, will update buying activity for the period ending Mar. 17. Weekly sales for the period ended Mar. 10 bounced back with a 0.7% gain, following a 0.4% decline in the preceding week. The increase from a year ago improved to 2.1%, from 1.5% in the prior period.

NEW RESIDENTIAL CONSTRUCTION - Tuesday, Mar. 20, 8:30 a.m. EDT

Housing starts probably are expected to have improved a little after tanking in January. Housing starts ran at an annual pace of 1.41 million in January, from 1.64 million in December and 1.57 million in November. The January rate of starts was the weakest since August of 1997 and down 37.8% from a year ago. The February results will likely be affected by a return to cold wintry weather through most of the country.

In January, housing permits slipped to a rate of 1.57 million, from 1.61 million in December. Even though activity has cooled off dramatically, home builders are likely to face continued pressure to lower prices and offer incentives to move unsold homes. Housing completions edged down to an annual pace of 1.88 million, from 1.9 million in December. The pace of completions in January was off only 8% from a year ago. That means a lot of new homes are still being placed on the market, which is one reason the number of completed new homes up for sale has continued to climb.

JOHNSON REDBOOK INDEX - Tuesday, Mar. 20, 8:55 a.m. EDT

This weekly measure of retail activity will report on sales for the second fiscal week of March, ended Mar. 17. For the first fiscal week ended Mar. 10, sales were up 0.2% compared to the same period in February. For the complete month of February, sales were off 1.1% from January.


Wednesday, Mar. 21, 9 a.m. EDT - The Federal Reserve's Federal Open Market Committee meets for a second day to discuss monetary policy. An announcement by the Fed will come around 2:15 p.m. Every economist polled by Action Economics fully expects the central bank will keep interest rates at 5.25%.

Economists will pay close attention to the post-meeting press release, as some recent economic data have pointed to softer economic activity. In addition, investors are nervous that problems in the subprime mortgage market could hurt more financial companies and cause a broader hit to economic activity.

MORTGAGE APPLICATIONS - Wednesday, Mar. 21, 7 a.m. EDT

The Mortgage Bankers Association issues its weekly mortgage application volume data for home buying and refinancing activity during the week ending Mar. 16. For the week ended Mar. 9, both the purchase and refi indexes grew some more. The purchase index was 414.3, from 405.3 in the week ended Mar. 2. The refi index climbed to 2312.2, form 2234.2 in the prior week.

The four-week moving average for the purchase index rose to 400.6, from 397.2 in the prior week. The four-week average for the refi index grew to 2102.8, from 2032.6.

The pickup in activity, especially in refi applications, is being driven by lower interest rates. The average 30-year fixed-rate mortgage inched down to to 6.03% from 6.04% in the week ended Mar. 2.


Thursday, Mar. 22, 12 p.m. EDT - Federal Reserve Bank of Richmond President Jeffrey Lacker gives the opening remarks ahead of Federal Reserve Board Governor Randall Kroszner's keynote speech at the Credit Markets Symposium hosted by the Richmond Federal Reserve Bank in Charlotte, N.C.

JOBLESS CLAIMS - Thursday, Mar. 22, 8:30 a.m. EDT

Jobless claims retreated in the week ended Mar. 10, to 318,000. In the prior week, claims eased to an upwardly revised 330,000, from an originally reported 328,000. The four-week moving average fell to 329,250, from 339,500 in the week ended Mar. 3. Continuing jobless claims for the week ended Mar. 3 moved up to 2.57 million, from 2.53 million in the week ended Feb. 24.

LEADING INDICATORS - Thursday, Mar. 22, 10 a.m. EDT

The Conference Board's composite index of leading economic indicators probably held steady in February, after ticking up 0.1% in January. The index is just off 0.1% from a year ago.

The index will get some support from stock prices. Over the entire month of February, the Standard & Poor's 500 stock index averaged a higher level vs. January. Higher weekly jobless claims levels, weaker consumer expectations, and quicker delivery times to manufacturers as reported in the Institute for Supply Management's factory activity report will help to offset the positive contribution from stocks.


Friday, Mar. 23, 8:30 a.m. EDT - Federal Reserve Bank of Richmond President Jeffrey Lacker moderates a panel discussion on "Liquidity Risk In Credit Markets" at the Credit Markets Symposium hosted by the Richmond Federal Reserve Bank in Charlotte, N.C.

9:15 a.m. EDT - Federal Reserve Bank of Philadelphia President Charles Plosser addresses the New Jersey Bankers Association convention in Palm Beach, Fla.

11:30 a.m. EDT - Federal Reserve Bank of New York President Timothy Geithner gives the closing remarks at the Credit Markets Symposium hosted by the Richmond Federal Reserve Bank in Charlotte, N.C.

EXISTING HOME SALES - Friday, Mar. 23, 10 a.m. EDT

Existing homes probably cooled off a little more in February. Sales improved a little in January, at an annual pace of 6.46 million, from 6.27 million in December, and 6.25 million in November. All the January sales improvement came in single-family homes, as condo sales slipped 0.1%.

Broken down by region, sales grew the most in the West, with a 5.6% monthly gain. However, the inventory of homes up for sale still grew to 3.55 million, equivalent to 6.6 months worth of sales. The number of existing homes up for sales in December was 3.45 million.

The weakness in sales is weighing on prices. The median price for single-family homes fell 3.5% from a year ago, with the decline centered among single-family homes. The median price of a condominium was up 0.5% from a year ago in January. The overall median price of an existing home nationally was $210,600, from $221,600 in December. The January median price was the lowest in nearly two years.

Earnings Calendar
Day Companies
Tuesday Adobe Systems, Cintas Corp., Oracle
Wednesday Darden Restaurants, FedEx, Morgan Stanley
Thursday ConAgra Foods, Jabil Circuit, Nike
Friday Freddie Mac
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