The housing market got off to a great beginning this year.
Existing Home Sales shot up 3.3% in January to a 5.69 million unit annual rate, the fastest pace since 2007!
The National Association of Realtors chief economist commented, "there are still challenges that remain however the housing market is off to an excellent start."
Existing home sales are up 3.8% over last year.
The challenges include low inventories, which have now fallen 20 months in a row, and a median price up 7.1% from a year ago, thanks to growing demand however that should bring more on-the-fence sellers into the market to boost supply.
Let's also note that mortgage rates are still extremely low by historical standards, incomes are increasing and the market will grow as surveys show homeownership continues to be the American dream. New Home Sales also had a great beginning to the year, posting a 3.7% gain in January, to a 555,000 unit annual rate. Some negative types harped on the fact that this sales pace was less than expected and still way below where we were pre-recession. Everyone knows this, and the trend is positive, with new home sales up 5.5% versus a year ago. Also, our painfully slow economic recovery finally appears to be picking up steam.
Review of Last Week
Investors believe the economy will soon be heading up at a faster rate, and that's precisely the direction they continue to send stock prices. Friday, the Dow logged its 11th straight record setting trading day, the longest streak of record closings since 1987. Forget records, the Dow hasn't seen 11 straight days of gains since 1992. The current performance made it three weekly gains in a row for the Dow, while the S&P 500 and the Nasdaq posted five weeks in a row of weekly increases. The S&P 500 also ended at a new record level, significant because it's a way more broadly based index than the blue-chip Dow.
Economic reports were sparse during the holiday shortened week but the ones we did receive were good. Gains in sales of existing homes and new homes for January are reported above. The final reading of the University of Michigan Consumer Sentiment index for February hit a better than expected 96.3. This was a tick down from January but still a very strong indicator of a positive mood about the economy among average Americans. FOMC Minutes from the last Fed meeting revealed a rate hike could happen fairly soon if forthcoming reports on inflation and the employment situation come in as the central bankers expect.
The week ended with the Dow UP 1.0%, to 20822; the S&P 500 UP 0.7%, to 2367; and the Nasdaq UP 0.1%, to 5845.
Bonds, including U.S. Treasuries, benefited from a decline in equities outside the U.S. This flight to safety boosted bond prices, as the 30YR FNMA 4.0% bond we watch finished the week UP .46, to $105.38. After dipping the week before, national average 30-year fixed mortgage rates remained essentially flat, rising just .01% (1 basis point) in Freddie Mac's Primary Mortgage Market Survey for the week ending February 23.
Where are interest rates headed?
This Week’s Forecast
Analysts are forecasting continued growth for Pending Home Sales in January but at a slightly slower pace. Likewise, Personal Spending should be up, though not as much as the month before. The Fed's favorite inflation measure, Core PCE Prices, is predicted to come in a little hotter, which is why more economists now think the central bank will hike rates in May instead of June. Nice to see manufacturing growing, both by the Chicago PMI and the national ISM Index.
The Week’s Economic Indicator Calendar
Weaker than expected economic data tends to send bond prices up and interest rates down, while positive data points to lower bond prices and rising loan rates.
Economic Calendar for the Week of February 27th – March 3rd
Feb 27 08:30 Durable Goods Orders
Feb 27 10:00 Pending Home Sales
Feb 28 08:30 GDP - 2nd Estimate
Feb 28 09:45 Chicago PMI
Feb 28 10:00 Consumer Confidence
Mar 1 08:30 Personal Income
Mar 1 08:30 Personal Spending
Mar 1 08:30 Core PCE Prices
Mar 1 10:00 ISM Index
Mar 1 10:30 Crude Inventories
Mar 1 14:00 Fed's Beige Book
Mar 2 08:30 Initial Unemployment Claim
Mar 2 08:30 Continuing Unemployment Claims
Mar 3 10:00 ISM Services
Federal Reserve Watch
Speculating Forecasting Federal Reserve policy changes in coming months:
After the FOMC Minutes came out last Wednesday, a slight majority of Fed watchers now think we will get the next rate hike in May however rates will stay at that level in June.
Note: In the lower chart, a 27% probability of change is a 73% certainty the rate will stay the same.
Current Fed Funds Rate: 0.5%-0.75%
After FOMC meeting on:
Mar 15 0.5%-0.75%
May 3 0.75%-1.0%
Jun 14 0.75%-1.0%
Probability of change from current policy:
After FOMC meeting on:
Mar 15 27%
May 3 52%
Jun 14 69%
Where are interest rates headed?
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