Tags: mortgage | rates | home | prices | housing

Surging Mortgage Rates Yet to Halt Soaring Home Prices

Surging Mortgage Rates Yet to Halt Soaring Home Prices
(Mark Plumley/Dreamstime)

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Thursday, 24 May 2018 11:28 AM Current | Bio | Archive

INDICATOR: April Existing Home Sales, March Home Prices and Weekly Jobless Claims

KEY DATA: New Home Sales: -2.5%/ FHFA Prices (Over-Year): +6.7%/ Claims: +11,000

IN A NUTSHELL: “Maybe rising mortgage rates will eventually slow the increase in home prices, but right now, that is not happening.”

WHAT IT MEANS: Is the housing market in good shape or is it starting to come under stress given the rise in mortgage rates and the lack of supply? The answer is “got me”. Yesterday we saw that new home demand eased in April and today the National Association of Realtors reported that existing home sales were off as well in April. No major geographic area posted an increase, indicating that the slowdown, though modest, was national in scope. Interestingly, while the number of homes on the market is still low, it did rise sharply in April to a level not seen in six months. Hopefully, inventories will continue to rise because the choice of homes remains limited and is restraining sales.

With inventories still below where they should be, it was hardly surprising to see that prices continue to rise at a high rate. The Federal Housing Finance Agency’s Price Index increased in March by the smallest pace in several years, which on the surface might indicate that high costs and high mortgage rates are slowing house inflation. But looking at the first quarter as a whole, the rise was pretty sharp and over the year, the increase was greater than it had been in over four years. In other words, price increases are still accelerating. However, there are vast differences in the behavior of prices across regions. For example, over the year, price rose by 9.4% in the Mountain states but by only 4.7% in New England. That indicates that conditions may be changing in a variety of markets and we could start seeing a slowdown in price appreciation during the second half of the year, even if inventories remain low.

Jobless claims jumped last week, but the level is probably closer to normal than the previous few weeks. The data are volatile and if you smooth it using a four-week average, the level of claims is still incredibly low.

MARKETS AND FED POLICY IMPLICATIONS: Some days, it is hardly worth worrying about the fundamentals of the economy. With the sturm and drang emanating from Washington, important economic data can be drowned out by the cacophony of political issues. Today, the president announced that the summit with North Korean was off. So geopolitical concerns took over. Still, would a successful summit really have made a significant difference in economic activity in the near or even medium term? Yet the markets tanked after hearing the news. That was probably just as irrational as the markets soaring after reading one line in the Fed minutes that implied that some members though it was okay if the economy runs a little hot. It only stated that: “It was also noted that a temporary period of inflation modestly above 2 percent would be consistent with the Committee’s symmetric inflation objective and could be helpful in anchoring longer-run inflation expectations at a level consistent with that objective”. The sentence didn’t indicate how many people felt that way. Was it one, a few, most of the members? Who knows? But investors ran with it. As I like to say, markets may be efficient but that doesn’t insure they are rational.

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

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Maybe rising mortgage rates will eventually slow the increase in home prices, but right now, that is not happening.
mortgage, rates, home, prices, housing
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2018-28-24
Thursday, 24 May 2018 11:28 AM
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