Weekly Economic Review: January Home Sales Hit a Stride Despite Limited Inventory

Posted by Laine Smith on 2/24/17 9:43 AM

Topics: Economy Housing Market Mortgage Rates

In this week’s economic review, new and existing home sales saw opposite results heading into 2017 while home prices in both indexes saw losses. The Fed released minutes from their most recent meeting, which suggested the likelihood of another interest rate hike.

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©iStockPhoto/maxsattana

Minutes from the January/February Federal Reserve meeting suggest that the Fed may find it appropriate to raise interest rates again “fairly soon” as long as job market and inflation data meet expectations. Back in December when rates were increased for only the second time since 2006, the Fed forecasted they would raise rates three times in 2017. The Fed will meet again to discuss rate setting again in March.

After lagging behind new home sales for the majority of 2016, existing home sales have hit a stride in the New Year. The index soared 3.3 percent in January to a 5.690 million rate, which is the best rate since February 2007.

Single-family homes increased 2.6 percent in the month with an especially strong month for condo sales, which increased by 8.3 percent. The strength of January’s existing home sales was unexpected due to extremely limited inventory, which stands unchanged at a 3.6-month supply. The median price fell 1.9 percent in the month to $228,9000 but is still up 7.1 percent year-over-year.

On the other side of the housing market, new home sales lost steam heading into 2017. January’s annualized pace of 555,000 came in way below expectations. The 3-month average has fallen more than 30,000 from September’s peak of 587,000. Inventory isn’t to blame for lagging sales, as inventory stands at a 5.7-month supply. 265,000 new homes went on the market in January, up 3.5 percent, which is the highest amount since July 2009, according to Bloomberg. More supply cause a downward mark for new home prices, which fell 1 percent in the month to $312,900.

The FHFA House Price Index, which covers single-family housing data from Fannie Mae and Freddie Mac, came in at plus 0.4 percent for December, bumping up the year-over-year rate to an appreciable plus 6.2 percent.

This week in the economy:

  • The 30-year fixed-rate increased slightly as of February 23 with the average at 4.16 percent with 0.5 points, according to Freddie Mac.
  • Purchase applications fell a seasonally adjusted 3.0 percent in the week of February 17, according to MBA Mortgage Applications. Refinance applications also dropped by 1.0 percent to the lowest level since January. The refinance share of mortgage activity dropped to 46.2 percent, which is the lowest level since November 2008.
  • Initial jobless claims increased to 244,000 in the week of February 18, but the 4-week average of 241,000 is at the lowest level since July 1973, according to Bloomberg.
  • The Bloomberg Consumer Comfort Index dropped a minimal 0.1 percent in the week of February 19. Overall, the index stands at a level of 48.

The economic calendar for the week of February 27, 2017:

  • Monday – Pending Home Sales Index
  • Tuesday – GDP, Consumer Confidence
  • Wednesday – MBA Mortgage Applications, Gallup U.S. Job Creation Index
  • Thursday – Jobless Claims, Bloomberg Consumer Comfort Index

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