Strong US Housing Market to Bring Fed Rate Hike
October Existing Home Sales and November Philadelphia Fed Non-Manufacturing Index
Sales: +2%; Prices (Over-Year): +6%/ Phil. Fed (NonMan.): -10.7 points; Orders: +6.9 points; Hiring: +5.8 point.
The National Association of Realtors (NAR) reported that in October, existing home sales hit their highest pace since February 2007.
The increases were spread fairly evenly across the nation, which points to a broad based expansion in the housing market.
Condo sales were flat but single-family activity, which is about 90% of the market, was up decently.
With demand rising, not surprisingly, prices were also up. The price increases were similar for both single-family and condos. The supply of homes on the market is still relatively low and that points to further strong gains in prices.
The Philly Fed reported that nonmanufacturing activity in its district continued to expand in November, but at a muted pace. This report was actually quite solid. New order growth accelerated sharply, as did sales, and firms were able to push through solid price increases for their own products. As a consequence, hiring of both full-time and part-time workers picked up nicely.
The US housing market has recovered and is nearing a more reasonable level of activity.
Construction and sales are back to Y 2007 levels and we do not need a whole lot more to get to levels that are consistent with long-term trends.
The Big Q: Can the market continue to improve now that interest rates are moving upward?
The Big A: Yes.
1st of all, rising rates tend to get the attention of fence sitters, who actually have to now start making decisions.
The rising prices should allow those that did not have enough equity to start putting their homes up for sale, boosting inventory.
And really, a 4% mortgage rate just is not high.
In Y 2005, at the peak of the housing boom, mortgage rates averaged nearly 6%.
In the 1990’s, when home sales were strong, mortgage rates hovered around 7.5%, and that is when 20% down payments were the standard.
Barring something unexpected, the Fed is raising rates on 14 December. With rising long-term rates telling the Fed that inflation is going to accelerate and with the possibility that expansionary fiscal policy.
The US economy, inflation and interest rates are all slated to rise, and the Fed needs to get going, it is way behind the curve.
Have a Happy Thanksgiving