Implications: While fears about Coronavirus dominate headlines, the US housing sector continues to signal that a recession remains nowhere in sight. New home sales spiked up 7.9% in January, easily beating consensus expectations, and marking the fastest sales pace since 2007. And it's not just buyers who are out in force. Builders have recently increased the pace of construction, and those new units are beginning to show up in the inventory of new homes available for sale, which trended lower in 2019 but has now begun to rebound. This, in turn, has also been a tailwind for GDP, with residential construction making a positive contribution to growth over the past two quarters, and looking likely to do so again to start 2020. Affordability has been playing an ongoing role in the rebound in sales, with mortgage rates having fallen roughly 110 basis points since peaking in November 2018. With rate hikes from the Fed on hold for the foreseeable future, and the tight labor market boosting incomes, the outlook for future sales remains positive. Look for a continuing upward trend in both sales and new construction in the year ahead. In other recent news on the housing market, the national Case-Shiller index rose 0.5% in December, but prices were up only 3.8% from a year ago. That's the slowest gain for any calendar year since the outright drop in home prices in 2011. In the past year, prices are up the fastest in Phoenix, Charlotte, and Tampa, while up the slowest in New York, Chicago, and San Francisco. Low-tax states beating high tax states, a theme that's likely to persist. The FHFA index, which measures prices for homes financed by conforming mortgages, increased 0.6% in December and are up 5.2% from a year ago. That's a deceleration from the 6.0% gain in the year ending December 2018. On the manufacturing front, the Richmond Fed index, a measure of mid-Atlantic manufacturing sentiment, fell unexpectedly to -2 in February from +20 in January. However, this is in sharp contrast to recent manufacturing reports from New York and Philadelphia, which showed a rebound in activity. We still expect the national ISM manufacturing index, reported next Monday, to show an increase in in activity for February.
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