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The Election Has Drained Everyone. The Housing Industry Hasn’t Noticed.

October 31, 2016

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We expected to see a pick up in home sales heading into the fourth-quarter of 2016, and that’s exactly what we are seeing.

Late last week, existing-home sales were reported, and the numbers show that sales were up 3.2% to 5.47 million units on an annualized rate in September. Single-family homes were a highlight of the report. They were up 4.1% to 4.86 million units on an annualized rate.

It appears a little more discounting occurred in September compared to most months. The median price of an existing home fell 2.4% to $234,200. The long-term trend is still up, though, with the median price of an existing home 5.6% higher compared to a year ago.

First-time buyers were another highlight. A solid 34% of existing-home sales were to first-time buyers. Should the trend in first-time buyers continue, as we expect, existing-home sales should remain robust as we head into 2017.

New-home sales were also up in September. Month over month, sales rose 3.1% to 593,000 units on an annualized rate.

But will the impending December interest-rate increase spoil the party?

We’d be surprised if it did. Financial markets have priced in a rate hike as if it were a foregone conclusion: Traders in federal funds rate futures contracts are pricing these contracts with a 75% chance of a rate increase. Meanwhile, the yield on the 10-year U.S. Treasury note continues to hold near a five-month high of 1.8%.

What’s anticipated rarely roils markets; it’s the unanticipated that sends everyone for the exits. Because everyone expects a Fed interest-rate hike, the Fed rate hike should be a non-issue. In other words, we see no reason the good times won’t continue into 2017.

We expected to see a pick up in home sales heading into the fourth-quarter of 2016, and that’s exactly what we are seeing.

Late last week, existing-home sales were reported, and the numbers show that sales were up 3.2% to 5.47 million units on an annualized rate in September. Single-family homes were a highlight of the report. They were up 4.1% to 4.86 million units on an annualized rate.

It appears a little more discounting occurred in September compared to most months. The median price of an existing home fell 2.4% to $234,200. The long-term trend is still up, though, with the median price of an existing home 5.6% higher compared to a year ago.

First-time buyers were another highlight. A solid 34% of existing-home sales were to first-time buyers. Should the trend in first-time buyers continue, as we expect, existing-home sales should remain robust as we head into 2017.

New-home sales were also up in September. Month over month, sales rose 3.1% to 593,000 units on an annualized rate.

But will the impending December interest-rate increase spoil the party?

We’d be surprised if it did. Financial markets have priced in a rate hike as if it were a foregone conclusion: Traders in federal funds rate futures contracts are pricing these contracts with a 75% chance of a rate increase. Meanwhile, the yield on the 10-year U.S. Treasury note continues to hold near a five-month high of 1.8%.

What’s anticipated rarely roils markets; it’s the unanticipated that sends everyone for the exits. Because everyone expects a Fed interest-rate hike, the Fed rate hike should be a non-issue. In other words, we see no reason the good times won’t continue into 2017.

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