Economical Updates March 31, 2017

Brightening Prospects

The Pending Home Sales Index (PHSI) has been making economists queasy since last fall. The index, based on signed contracts for home purchases, is a leading indicator of existing home sales over the following one or two months. For the last three months, it has wobbled between negative numbers and lackluster ones. A particularly bad January report cast doubt on prospects for a robust spring market.
Well, put on your tip-toe-through-the-tulips shoes. The National Association of Realtors says that pending sales jumped by 5.5% in February, more than twice the increase expected. This brought the index to 112.3, the second-highest reading (trailing only April 2016) in 11 years. The surge was broad based; every region saw an increase, ranging from 3.1% in the West to 11.4% in the Midwest.
We reported earlier this month that home price reports from both CoreLogic and the Federal Housing Finance Agency indicate that the price increases are no longer accelerating and in fact may be losing steam. This week Black Knight Financial Services reinforced that notion; its Home Price Index rose 5.4% for the 12 months ending in January, 0.3% point less than the December increase. However, the granddaddy of all price trackers, S&P Case-Shiller, put a big lid on that theory.
Largest Gain in Thirty-One Years
Case-Shiller’s National Index for January showed a year-over-year increase of 5.9%. This was not only a bigger gain than December’s (5.8%) but was the largest in 31 months. Both the Case-Shiller 10-City and 20-City Composites posted even larger annual gains from December than the National Index and 12 of the 20 metropolitan areas in the index saw prices rise faster in January than December.
Interest rates are back in the news this week–and on two different fronts. Even though the Federal Reserve’s Open Market Committee (FOMC) announced, as it raised the fed funds rate on March 16, that they would probably do it two more times this year, three members of the of the Board of Governors said this week that, maybe they really meant three more times.

We are often reminded that the fed rate is a short-term one, and doesn’t necessarily affect long-term rates like mortgages. Sure didn’t this time. The day after the last rate hike Freddie Mac’s 30-year rate averaged 4.30%. Since then it has dropped 16 basis points, nine of them this week alone.