The pause I see in housing is within the context of a likely multiyear recovery, but it will negatively impact nominal and real GDP in the second half.
As I wrote, the Fed's and the market's optimistic economic forecasts seem destined to be wrong.
Refinancings dropped by -0.7% week over week last week, the lowest print in two years. The index has now dropped in 10 of the last 11 weeks. When refinancings decline, household cash flows are adversely impacted, and I continue to see a rocky retail sales outlook ahead. This, coupled with rising gasoline prices and a five-year low in the savings rate, should be significant headwinds to consensus growth forecasts over the next two quarters.
New mortgage applications declined by -2.1% last week, the weakest print since the middle of March. Applications are down in four of the last five weeks -- this signals a moderation in housing demand.Slow nominal GDP growth will set the stage for a more challenging top and bottom line for most large U.S. corporations. (Note: Excluding financials and buybacks, second-quarter 2013 EPS (year over year) should be only about +1%.)
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