Tags: home | sales | economy | housing

Higher Real-Estate Prices Aren't Scaring Off Homebuyers Just Yet

Image: Higher Real-Estate Prices Aren't Scaring Off Homebuyers Just Yet

(Dollar Photo Club)

Wednesday, 22 Feb 2017 04:02 PM Current | Bio | Archive

  • INDICATOR: January Existing Home Sales
  • KEY DATA: Sales: (Monthly): +3.3%; Over-Year: 3.8%; Prices (Over-Year): +7.1%
  • IN A NUTSHELL: “With sales hitting their highest point in a decade and prices soaring, it is clear the housing market is healthy again.”

WHAT IT MEANS: Housing was the economy’s downfall but now it is a leading sector. The National Association of Realtors reported that existing home sales rose moderately in January. The sales pace reached was the highest since February 2007. There were solid increases in three of the four regions, with only the Midwest posting a decline. That was true both over the month and over the year.

On the pricing front, home costs are rising at a strong pace that needs to be watched if mortgage rates start to rise further. For now, the higher prices are not scaring off buyers but that could change. Since inventory remains quite low, there is every reason to think that there will not be a major slowdown in the rate of home cost appreciation.

Yesterday, the Philadelphia Fed released its February non-manufacturing survey and the results were somewhat disappointing. Respondents indicated that the economy in the Middle Atlantic region continued to expand but more moderately than it had in January. Worse, business activity throttled back fairly sharply. Demand was solid but a touch less robust and hiring remained sluggish. Some of the bloom came off the hopes for a quick Trump recovery as expectations of the future, though still solid, were off significantly. Reality about the potential for future growth is starting to set in. The January numbers were borderline irrational exuberance.

MARKETS AND FED POLICY IMPLICATIONS: It may have taken a decade, but the housing market is back. Let’s hope that it isn’t back too much. That is not a problem I think we have right now. The new home market, both in terms of starts and sales, still has a long way to go to get back to what we would call a strong level. The current pace of existing home sales is sustainable, not excessive. Keep in mind, by early 2007, the housing market was already headed into a tailspin. That was when former Fed Chair Ben Bernanke thought the housing bubble was slowly deflating. Not a good call.

Prices are starting to get a little pricey, especially given that mortgage rates remain extremely low. If we do get some decent fiscal stimulus and if the forecasts of over 3% coming out of the administration do come true, look for inflation and interest rates to gap up over the next year. That could start pricing buyers out of the market once the panic of buying before it is too late subsides.

As I have written many times, there is no such thing as a free tax cut and with the economy essentially at full employment and inflation already at if not above the Fed’s target, rates are going up. Indeed, the minutes of the last FOMC meeting stated that a rate hike could come “fairly soon.”

Nevertheless, investors seem willing to keep pushing forward until there actually are rate increases. The next FOMC meeting is March 14-15. A strong February jobs report and a sharp rise in wages could be the cover the Fed needs to move then. If not, I still believe the May 2-3 meeting is when it will happen. Regardless, it is coming “fairly soon.”

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

© 2017 Newsmax Finance. All rights reserved.

1Like our page
With sales hitting their highest point in a decade and prices soaring, it is clear the housing market is healthy again.
home, sales, economy, housing
Wednesday, 22 Feb 2017 04:02 PM
Newsmax Inc.

Newsmax, Moneynews, Newsmax Health, and Independent. American. are registered trademarks of Newsmax Media, Inc. Newsmax TV, and Newsmax World are trademarks of Newsmax Media, Inc.

© Newsmax Media, Inc.
All Rights Reserved