Tags: home prices | economy | wealth | economic growth

Soaring Home Prices Bolster Wealth Effect, Point to Better Growth Ahead

Image: Soaring Home Prices Bolster Wealth Effect, Point to Better Growth Ahead

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Tuesday, 28 Feb 2017 11:19 AM Current | Bio | Archive

  • INDICATOR: February Consumer Confidence, Revised 4th Quarter GDP and December Home Prices
  • KEY DATA: Confidence: +3.2 points; Expectations: +3.1 points; Current Conditions: +3.4 points/ GDP: 1.9% (Unchanged)/ Home Prices (Monthly): +0.7%; Over-Year: +5.8%
  • IN A NUTSHELL: “Solid views of current economic conditions and soaring home prices, which are adding to wealth, both point to better growth down the road.”


WHAT IT MEANS: Consumers are starting to take a more calculated view of conditions and they like what they see. The Conference Board’s Consumer Confidence Index rose in February, erasing the January decline and hitting a fifteen-year high. There were some large changes in the January details but the components settled down this month. Improving views on business conditions led to an increase in both the current and future conditions indices. The labor market outlook, especially going forward, was solid as a growing percentage of respondents expect jobs to be more plentiful. That confidence rose despite all the issues that cropped up this month is an indication that the solid economy is dominating household thinking.

Economic growth for the fourth quarter was unchanged and the revisions were pretty modest in most categories. The one area where there was a fairly large alteration was in consumption. Apparently, we went out and spent even more than previous estimated. Unfortunately, we also bought more from the rest of the world. The widening trade deficit restrained growth greater than initially calculated.

Home prices are rising and the gains are accelerating. The Case-Shiller National Home Price Index jumped in December, hitting an all-time high. The smaller big-city indices are still below their peak, but they are getting there. Are prices rising too quickly? The report noted that when adjusted for inflation: “Home prices are rising, but the speed is not alarming.”

MARKETS AND FED POLICY IMPLICATIONS: The President is speaking tonight and, hopefully, will provide details about his economic plan. The time for generalities is over and we need to see exactly how money will be spent, how taxes will be cut and how the budget deficit will be kept from rising sharply. As for the ACA changes, who knows how that will go? I have been criticized for arguing that replacing the law would be difficult because health care is such a complex issue, so I am pleased the president now agrees with that view. The uncertainties swirling around paying for the tax cuts and spending increases and the replacement of the ACA is likely to make investors more cautious as their hopes for quick action and significantly stronger growth this year are coming face-to-face with the realities of Congressional action.

Joel L. Naroff is the president and founder of Naroff Economic Advisors, a strategic economic consulting firm.

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Solid views of current economic conditions and soaring home prices, which are adding to wealth, both point to better growth down the road.
home prices, economy, wealth, economic growth
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2017-19-28
Tuesday, 28 Feb 2017 11:19 AM
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