That's hard to believe given single-family housing starts are on a pace of 622K this year, after 618K a year ago - a far cry from the pre-bubble average of 1.1M in the 1990s. Trouble is, says Kelko, the historical norm doesn't say what the level of construction should be now. Instead, look at the rate of household formation.
If housing starts run ahead of the rate of household formation, homes sit empty and vacancies rise, and that's just what the latest data from the Census Bureau shows. As opposed to multi-unit rental market where vacancies are falling. Even with an increase in single-family rentals, the overall single-family vacancy rate ticked up to 10.7% in 2013 from 10.6% a year earlier, and vs. 7.4% in the pre-bubble days of 2000.
For single-family vacancy rates to get back to normal, even household formation needs to increase or housing starts need to slow. In the meantime, it will be multi-family activity needing to lead the construction recovery.
Separately, the former head of Goldman's housing research team says home prices are 12% overvalued today and have already started to slide. "I am lamentably confident that home prices will fall by 15% within three years."
Mortgage rates moved higher in the past week, according to the latest Freddie Mac survey which shows the average rate for a 30-year fixed-rate mortgage climbing to 4.23%, hitting the highest rate since early May.
The average rate for the 15-year fixed-rate mortgage rose to 3.37%; last week, the respective 30-year and 15-year rates averaged 4.12% and 3.26%.
A year ago, the 30-year rate was at 4.50% while the 15-year rate averaged 3.54%.
August housing starts of 956K fell 14.4% from July's 1.1M, and were 8% higher than a year ago. Single-family starts of 643K fell 2.4% from July, making volatile multi-family starts the key to August's drop.
Building permits of 998K declined 5.6% from July and were up 5.3% from a year ago.
The projection for 2015 GDP growth is cut somewhat, but so is the forecast unemployment rate, now at a range of 5.4-5.6% from 5.4-5.7%. The high end of the core PCE inflation forecast is cut, now 1.6-1.9% from 1.6-2.0%.
11 out of 17 FOMC members now see the Fed Funds rate at above 1% by the end of 2015. Four of the group see Fed Funds at about 4% by the end of 2016.
The bond market is selling off on what could be argued to be a more hawkish lean to the policy statement and projections. The 10-year Treasury yield - at about 2.56% ahead of the release - is up to 2.60% at the moment. TLT +0.35%
More sensitive to short rate, the 3-year yield jumps about 7 basis points to 1.1%.
Janet Yellen's press conference begins at 2:30 ET.
There's little change to the language in the FOMC policy statement, with the "considerable period" language remaining. The taper continues, and the FOMC expects to end the asset purchase program at its next policy meeting.
There were two dissents to today's action, with Richard Fisher and Charles Plosser arguing the strength in the economy will warrant an earlier rate hike than is currently anticipated.
“Since early summer, builders in many markets across the nation have been reporting that buyer interest and traffic have picked up," says NAHB Chairman Kevin Kelly. On the other hand, says NAHB Chief Economist David Crowe, "We are still not seeing much activity from first-time homebuyers."
This month's increase in the headline Housing Market Index to 59 was the fourth straight gain, and brought the level to its highest since November 2005.
Awaiting FOMC members when they arrive for day two of their policy meeting will be today's news of a 0.2% decline in the CPI in August (vs. a forecast 0.1% gain), along with the core rate flatlining (vs. a forecast 0.2% gain). It's first time the core rate hasn't risen on a month-to-month basis in four years. So much for being behind the curve.
On a year-over-year basis, the CPI rose 1.7% vs. 1.9% estimated.
The 10-year Treasury yield slips to 2.56% from 2.59% ahead of the report.
Isn't this one of the ways we got into the housing mess? Citigroup (NYSE:C) signs on with Bank of America (NYSE:BAC) to fund 15-year mortgages at below-market rates for borrowers with low incomes, spotty credit histories, or both.
The loans are being originated by the Neighborhood Assistance Corporation of America (NACA), a group - that has the ear of HUD - known for pushing banks to show they're fulfilling the terms required of them by the Community Reinvestment Act of 1977 (no redlining).
The moves also follow the banks' massive mortgage settlements, part of which were agreements to provide assistance to troubled mortgagees, though both say this new program is not related.
For its part, NACA says the foreclosure-loss rate on more than 18K purchase loans it has originated since 2006 is about 0%, with one of the reasons being NACA making up to three months of mortgage payments when borrowers run into trouble.
The last week has seen a number of shops moving forward their forecasts for the timing of Fed rate hikes, and suggesting the FOMC will set the stage for tighter policy by removing the rates at zero for a "considerable time" language from its policy statement tomorrow.
Not so fast, says the WSJ's Jon Hilsenrath in a video chat. The "considerable time" pledge will, in fact, remain.
The news is enough the send a previously flatlining S&P 500 (NYSEARCA:SPY) to a 0.65% gain. The Nasdaq 100 (QQQ +0.5%) and DJIA (DIA +0.5%) rise alongside.
Forty-eight percent of fund managers believe the Fed will begin rate hikes in Q2, according to the BAML Fund Manager Survey for September. That's up from 38% one month previous. The ECB is a different story - with 42% expecting QE before year's end vs. only 32% believing so in August.
Naturally in this scenario, the group overwhelmingly - 86% - expects the dollar (NYSEARCA:UUP) to strengthen, not just against the euro (NYSEARCA:FXE), but the yen (NYSEARCA:FXY) as well, given the BOJ's threat to ease more.
The Scottish referendum, meanwhile, has managers skittish, with the U.K. (NYSEARCA:EWU) being the region most want to underweight in the coming 12 months.