The economy’s strong performance in the second quarter—the GDP rose more than 4%—didn’t scare the Fed. They say the economy isn’t overheating and kept rates fixed at their meeting this week. They still seem committed to two more hikes this year.
The news this week was more big-picture economics than housing related, with both a Federal Reserve Open Market Committee (FOMC) meeting and the first estimate of the 2nd quarter GDP making headlines. The GDP, at 4.1% was good news after a fairly lackluster first quarter with growth just revised from 2.0 to 2.2%. Consumer spending was the star, up 4.0% and contributing 2.7 percentage points to the total rate. Spending on services kicked up 1.5 points. Residential investment (primarily spending on new single and multifamily construction, remodeling, and brokerage fees) was again a drag on overall GDP, but less so than in the first quarter when it was down 3.4%. This time it only lost 1.1%.
The FOMC’s preferred measure of inflation, the Core PCE, increased 2.0% compared to 2.2% in the first quarter. The Fed wasn’t expected to raise rates this time, but this slight cooling gave them another excuse to stay on schedule. The fed funds rate will remain at the 1.75-2.0% range for a while longer.
More Listings, Less Crunch?
Housing news was totally lacking. S&P CoreLogic Case-Shiller home prices were monotonously consistent. The National Index for May had an annual gain of 6.4% for the second straight month and the monthly gain was slightly higher than in April at 1%. Seattle, Las Vegas, and San Francisco continue to lead, all with double digit annual increases.
Case-Shiller’s David Blitzer sounded a bit of an alarm in his commentary, saying the slowing rate of home sales “suggest that the combination of rising home prices and rising mortgage rates are beginning to affect the housing market.”
And right on cue, the National Association of Realtors (NAR) announced that June was the sixth straight month that pending home sales trailed those a year earlier. Sales did tick up for the second month in a row, increasing 0.9% from May, but NAR’s Pending Home Sales Index lags June 2017 by 2.5%. Contract signings increased in all four regions; they were up 0.7% in the West, but all four are running behind the 2017 numbers as well.
NAR Chief Economist Lawrence Yun said the 4.3% increase in listings noted last week in the existing home sale report meant it was a little easier for buyers to find a home in June. He added, “The good news is that the increase in listings last month may mean the worst of the supply crunch is over.” Several large metro areas saw big jumps in their inventories, including Portland, Oregon (24%), Seattle (19%), and San Jose (15%).
We'll keep an eye out to see if this is the beginning of a trend.
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