The Mortgage Corner
Higher new and existing-home sales, and continued economic growth are the reason the Fed raised their overnight rate into a range between 1.5 to 1.75 percent on Wednesday. Even with consistently low inventory levels and faster price growth, existing-home sales bounced back in February after two straight months of declines, according to the National Association of Realtors.
And The Conference Board Leading Economic Index (LEI) for the U.S. that measures future growth possibilities increased 0.6 percent in February to 108.7 (2016 = 100), following a 0.8 percent increase in January, and a 0.7 percent increase in December. It points to accelerating growth this year.
Total existing-home sales, https://www.nar.realtor/existing-home-sales , which are completed transactions that include single-family homes, townhomes, condominiums and co-ops, grew 3.0 percent to a seasonally adjusted annual rate of 5.54 million in February from 5.38 million in January. After last month’s increase, sales are now 1.1 percent above a year ago.
Lawrence Yun, NAR chief economist, says sales were uneven across the country in February but did increase nicely overall. “A big jump in existing sales in the South and West last month helped the housing market recover from a two-month sales slump,” he said. “The very healthy U.S. economy and labor market are creating a sizeable interest in buying a home in early 2018. However, even as seasonal inventory gains helped boost sales last month, home prices – especially in the West – shot up considerably. Affordability continues to be a pressing issue because new and existing housing supply is still severely subpar.”New-home sales are also surging, up 2.2 percent annually in February reports the Commerce Department, and 9.4 percent in 2017 overall. Inventories are also up to a 5.9-month supply and the median sales price in February was $326,800, nearly 10 percent higher than a year ago.
And, “The U.S. LEI rose again, despite a sharp downturn in stock markets and weakness in housing construction in February,” said Ataman Ozyildirim, Director of Business Cycles and Growth Research at The Conference Board. “The LEI points to robust economic growth throughout 2018. Its six-month growth rate has not been this high since the first quarter of 2011. While the Federal Reserve is on track to continue raising its benchmark rate for the rest of the year, the recent weakness in residential construction and stock prices – important leading indicators - should be monitored closely.”What recent weakness? Single-family starts, which are key to restocking the new home market, rose 2.9 percent to a 902,000 rate which is up 2.9 percent from this time last year. Director Ozyildirim was really talking about the fears of a trade war with Trump’s tariffs on China and Japan about to be enacted. The administration is exempting Australia, Brazil, S Korea, Great Britain, EU, Mexico and Canada at the moment.
Total housing inventory at the end of February rose 4.6 percent to 1.59 million existing homes available for sale, said the NAR, but is still 8.1 percent lower than a year ago (1.73 million) and has fallen year-over-year for 33 consecutive months. Unsold inventory is at a 3.4-month supply at the current sales pace (3.8 months a year ago).
What about future interest rates? Fed Chairman Powell wants to toe the “middle ground” on rates, which means raising them slowly this year, as he sees no inflation at all on the horizon. The problem with raising interest rates with so little inflation is it crimps household spending and so growth. This particular set of conditions—raising interest rates with little inflation—has always been the precursor to a recession.
Harlan Green © 2018
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