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Markets Chug Along

After the busy economic and monetary agenda of last week, the beginning of astronomical spring had fewer headlines.  We are already three weeks into meteorological spring and the markets have that same sort of feel.  Just like we were getting accustomed to warmer temps and longer daylight, investors had already priced in a Fed hike before last week’s action and are ready to just get on with it.  The notable economic results of the week were centered around housing which is a key driver of overall activity and growth.   

Existing home sales data fell 3.7% in February according to the National Association of Realtors.  Demand is being restrained by a limited inventory of homes for sale.  That has resulted in a 7.7% jump in the median sales price from a year earlier.  That is putting affordability out of reach for some buyers but, for those who can afford to buy, homes are staying on the market for only 45 days compared to 59 days on average in February of 2016.  The sales pace, which measures transactions compared to inventory, was 3.8 months last month versus 4.3 months in February of last year.  Thus, even though the headline number dipped, demand for previously owned homes remains quite strong. 

New home sales are a more timely indicator of housing demand because figures are tallied when the sales contract is signed versus existing home sales which are tabulated only after closing which could be one or two months after buyers and sellers agree on a price.  According to the Commerce Department, new homes rose in February 6.1% to a 592,000 annualized pace, a seven-month high.  New single-family home purchases in 2016 were the strongest in nine years and so far 2017 is shaping up to be solid.  The Midwest saw a 30.9% jump in sales which was the highest region, but purchases also rose in the West and South.  The supply of homes fell to 5.4 months from 5.6 months in January.  A 4.9% drop in the median sales price is helping move inventory even in the face of higher rates.  According to mortgage giant Freddie Mac, the average rate on a 30-year, fixed mortgage rose to 4.3% in the week ended March 16, up from 3.5% in early November.  Growth in the job market and strengthening balance sheets is so far overwhelming the rate boost.  Whether this trend will continue is uncertain.  With the Fed now on a rate hike trajectory, slowly but surely mortgage rates will reflect this upward movement.  Housing transactions are sensitive to rate changes but not as much as refinancings which have slowed significantly.  Assuming a perspective buyer has the funds for a down payment, rates may either accelerate or delay a final decision but usually not eliminate the transaction altogether.

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