KEY MARKET INDICATORS as of March 20, 2017
Fed Raises Rates, February Housing Starts.
Federal Reserve Meeting – The Federal Reserve raised short-term interest rates up by 25 basis points (bps) to 0.75-1% at its March meeting. But the key takeaway from the meeting is that the Fed does not see a need to accelerate the rate hike in the current environment of moderate economic growth and moderate inflation. This is supported by the Fed’s own economic outlook for the next 2 years, which points to continued economic growth at ~2%, 2% inflation rate, and ~4.5% unemployment rate. The tone of the March meeting surprised the financial market, which had expected a more hawkish tone before the Fed meeting. After the meeting, the yield on 10-year Treasuries went down 10bps to 2.5%. A gradual process of rate increases is a good scenario for the housing market.
Housing Starts – Housing starts had a solid performance in February, reporting a 3% increase from January to a seasonally adjusted annual rate of 1.29 million units. Compared to a year ago, housing starts were up 7%. Single-family housing starts continued to move up, rising 6.5% from January to a seasonally adjusted annual rate of 872,000 units – the highest level since 2007. Because of a spike a year ago, single-family housing starts were up just 3.5% year over year. Over the next few months, we expect single-family starts growth rate to move higher. Multi-family starts also reported a very strong month, reporting almost 400,000 units in February. Regionally, the Northeast region had the strongest year-over-year growth rate, likely benefitting from a warmer-than-usual February.