EC Weighing The Week Ahead: Help For The Economy From Housing?

The economic calendar includes much more housing data than we normally see in a single week. With Fed Chair Yellen’s Congressional testimony and the GDP revisions also on tap, I expect many observers to be linking these topics. They will ask:

Is it finally time for a housing rebound?

Prior Theme Recap

In last week’s WTWA I predicted that the punditry would focus on the new record in stocks, and especially on whether energy stocks would support the breakout. Those were indeed two major themes all week and they were frequently linked, so the question was accurate. Mostly the answer was rather negative. The stock rally continued, but without help from most of the energy sector.

Feel free to join in my exercise in thinking about the upcoming theme. We would all like to know the direction of the market in advance. Good luck with that! Second best is planning what to look for and how to react. That is the purpose of considering possible themes for the week ahead.

This Week’s Theme

The quirks of the calendar include some of the major economic reports on housing – new sales, existing sales, and pending sales – along with Case-Shiller and FHFA pricing and the mortgage index. There is a lot of fresh information.

We will see the second estimate of Q4 GDP, with many wondering about the role of a possible housing rebound. Janet Yellen will testify before two Congressional committees, elaborating on current Fed thinking. And finally, the remaining earnings reports feature some of the major companies associated with home construction.

The confluence of these factors will spark the question: Can Housing Finally Contribute to the Economic Rebound?

The Viewpoints

There is a wide range of opinion on housing:

Fundamental weakness. Some major opinion leaders, including Jeff Gundlach, Laurence Fink, and Sam Zell note the changing demographics and issues in supporting the mortgage market. (This article is from last year, but lays out the reasoning effectively).

Miscellaneous bearish factors. CNBC’s Diana Olick covers the housing beat and always seems to find a threat to the rebound. A look at her blog’s index page shows stories about the trickle down of high rents to small cities, expected weakness in Houston from falling oil prices, lack of impact from more jobs, higher mortgage rates, negative effects of a strong dollar, and similar stories.

The long bottom. Calculated Risk has been the leading exponent of this view. The data show that some of the new construction represents owner-built starts and homes intended for rent. Bill recommends consideration of this chart:

Positive developments. Jonathan Golub of UBS notes that household formation is booming:

As always, I have some additional ideas in today’s conclusion. But first, let us do our regular update of the last week’s news and data. Readers, especially those new to this series, will benefit from reading the background information.

Last Week’s Data

Each week I break down events into good and bad. Often there is “ugly” and on rare occasion something really good. My working definition of “good” has two components:

The news is market-friendly. Our personal policy preferences are not relevant for this test. And especially – no politics.

It is better than expectations.

The Good

There was some good news last week.

Progress in Greece. After a slow start to the week, including a German spokesman calling the Greek proposal a “Trojan Horse,” there was finally a firm agreement — to delay for four months. As I noted last week, this type of negotiated solution is actually quite typical. Each side does as little as possible. There is an opportunity for face-saving. The worst crisis outcome is averted. Markets seemed less worried about Greece than three years ago, and celebrated the Friday agreement.

Weekly jobless claims dipped. Back below 300K. Calculated Risk analyzes and charts the significance.