To no one’s shock, the Federal Reserve hiked its benchmark interest rate at the September Open Market Committee meeting this week. It cites the strong economy as a reason and almost pinkie swore another increase before year end.
The strong economy however has one weak spot, housing. Price increases seem to be slowing – not necessarily a bad thing – and new home sales and inventories did increase last month. On the down side, pending home sales continued in the slump that has affected existing home sales for months.
To the surprise of virtually no one, the Federal Open Market Committee (FOMC) raised the Fed funds rate at this week’s two-day meeting. They had long been expected to do just this in September and that became a virtual certainty after a solid August jobs report along with some inflationary pressures that popped up in the Consumer Price Report. It was the 8th time since the end of the financial crisis that the FOMC has raised rates; after the quarter-point hike, the rate should land between 2.0 and 2.25%.
The committee’s vote was unanimous, and its post-meeting statement indicates there will be another increase before the end of 2018. The statement made several references to the “strong” economic conditions and The New York Times noted that the Fed, for the first time in years, did not use the term “accommodative.” This, the paper said, indicates that the rate is approaching what the Fed considers neutral, “that is neither stimulating nor restraining.”
And on the Housing Front...
There have been indications over the last few months that another increase, that of home prices, might be slowing. There was solid support for the theory this week when the multiple S&P Case-Shiller indices and the Federal Housing Finance Agency’s (FHFA’s) Housing Price Index noted additional slow but steady winding down in July.
S&P’s David Blitzer put it this way, “Rising homes prices are beginning to catch up with housing.” He noted that both annual and seasonally adjusted monthly increases lessened for all three of the Case-Shiller indices and 15 of the 20 cities tracked saw smaller monthly increases in July 2018 than a year earlier. The FHFA findings were similar, and prices actually declined in three of the nine census divisions.
New home sales broke out of a two month slump in August, rising 3.5% to a seasonally adjusted annual rate of 629,000 units. The good news was muted a bit by a nearly 20,000 unit downward revision to the July estimate, but sales are now well above those of last year, both nationally and in all four regions.
The slump continued for pending sales, however. They fell 1.8% from July, the fourth monthly loss in five months, and lagged year-over-year for the eighth consecutive month. This does not bode well for existing home sales over the next few months.
New home inventories picked up at bit, to 325,000 homes, although more than half are located in the South, and only about 66,000 are actually completed. There is now a 6.1 month supply at the current sales rate which is considered a “balanced” market. Maybe this will add to the forces moderating price gains.
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