Doctor’s > Rate & Economic Update: The Unrelenting Ascent
Keeping you updated on the market!
For the week of
April 10, 2017
The Unrelenting Ascent
Another week and another indicator indicates that home prices continue to rise relentlessly.
The S&P/Case-Shiller Home Price Index confirmed last week what we already know: homes prices continue to rise, as they have since the end of the 2009 recession. This week CoreLogic seconds the confirmation: Its home price index showed prices in February were up 1% month over month. Year over year, CoreLogic’s index shows that prices are up 7%.
CoreLogic sees no end in sight. Its soothsayers see their home price index rising 4.7% in 2017, with monthly increases coming in 0.4% increments.
Most of the major home-price-data providers — Case-Shiller, CoreLogic, Trulia, Zillow — present their numbers based on a distilled national average of prices. All these national averages have been rising consecutively month-over-month for the past five years. The relentless ascent has upped the “bubble” chatter.
But as we mentioned last week, there is a mitigating factor to bubble concerns: The indexes are reported in nominal dollars. When adjusted for consumer-price inflation, prices are somewhat less bubbly. In real terms (inflation adjusted), prices are actually still below the 2006 peaks.
But we have another concern related to relentlessly rising prices: reduced affordability.
The U.S. Home Affordability Index from ATTOM Data Solutions shows affordability at its lowest level in eight years. In the first quarter, affordability slipped below the average historical lows in 25% of the markets ATTOM follows.
But again we have a mitigating factor: Averages rarely, if even apply, to any single market. (In fact, averages rarely apply to any individual or any single business.) What’s occurring in the housing market in San Francisco could be diametrically opposed to what’s occurring in the housing market in Houston. If the two markets are averaged, a figure is produced that would likely be meaningless in describing the economic reality of either market.
Yes, we frequently report the big nationwide macro numbers (the averages and the aggregates). But it’s important to remember that these numbers have no independent life of their own that’s separate from the individual markets that form them.
The fact is that most business people have little use for the macro data as it pertains to their own business. But there’s a reason we report them: other people follow them and react to them.
Therefore, a businessperson cannot afford to ignore changes in the macro data — such as national average home prices or national median home prices or national mortgage rates — that governments and central bankers will respond to. For example, if the Federal Reserve is expected to tighten its monetary stance in response to strengthening gross domestic product, business people need to account for the change in monetary policy in order to better gauge the future and to better manage their businesses.
So there is some value in reporting macro numbers, but the micro numbers (doings in the local market) are always the more important numbers in managing daily business operations.
Date and Time
Wed., Apr. 12,
7:00 am, ET
Moderately Important. Lower, staid mortgage rates over the past month have motivated more people to borrow for a purchase loan.
Consumer Sentiment Index
Thurs., Apr. 13,
10:00 am, ET
Moderately Important. Consumers have become more concerned about the economy and wage growth, which could reduce consumer spending.
Consumer Price Index
Fri., Apr. 14,
8:30 am, ET
All Goods: 0.2% (Increase)
Moderately Important. Consumer-price inflation now rises at a rate that will allow the Fed to adhere to its policy of moderately higher short-term interest rates.
Rates and Activity Hold Steady
With political gridlock the name of the game in Washington these days, there’s little impetus for financial markets to move one way or the other. Stocks, showing some daily volatility, have really gone nowhere for the past month. We can say the same for lending rates.
Mortgage rates, in particular, have again settled into a range. The range on the prime conventional 30-year loan vibrates between 4% and 4.25%, as it did in the beginning of the year. The national quote on the 30-year loan has settled around 4.125% over the past couple days. We’re not surprised. The yield on the 10-year U.S. Treasury note used to find a floor at 2.4%. That 2.4% marker serves as a ceiling today.
Is there a chance we could see a pickup in mortgage-rate volatility in the near future? Anything is possible, which is to belabor the obvious. But glancing at the scheduled economic data for next week, we don’t see much that could get mortgage rates moving one way or the other.
The good news is that lower, staid mortgage rates have stimulated purchase activity, which rose 1% for the March 31 week. Purchase activity is up a strong 8% compared with a year ago. Rising purchase activity portends rising future home sales.
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