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Home Sales Shoot Upwards

May 2, 2017

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Rising prices usually result in reduced sales. That is, rising prices result in reduced sales if demand remains constant. Demand for housing has hardly remained constant; it has been accelerating.

Existing-home sales were up a strong 4.4% to 5.71 million units on an annualized rate in March. This is the best month-over-month increase since February 2007. More impressive, sales volume wasn’t juiced up by price concessions. To the contrary, the median price of an existing home was up 3.6% to $236,400 in March. Accelerating demand is further evinced by days on the market, which dropped to 34 in March from 45 in February.

It’s not just existing-home sales clawing to higher ground. New-home sales continue to claw higher as well. Sales of new single-family homes posted higher than most economists expected. New-home sales posted at 621,000 on an annualized rate in March. This is 5.8% higher than February sales. Only July 2016 sales have posted higher since the recession ended in 2009. 

As with existing-home sellers, new-home sellers weren’t discounting to move inventory. The median price of a new home rose 7.5% to $315,100 for March. Supply did move up marginally, but at the current sales pace, inventory remains steady at a 5.2-months supply. 

Though mortgage rates have trended lower since March, they, too, were actually up over the past week, though not by much. Quotes between 4% and 4.125% on a prime conventional 30-year loan are the norm around the country these days. Quotes could move up if the Trump administration’s recent talk of a 15% corporate income tax rate gains traction.

Financial-market participants reacted favorably to the talk of lower corporate income tax rates this week by moving out of haven investments, like U.S. Treasury securities, and into riskier investments, namely stocks. If lower corporate income tax rates come to fruition, more money will flow out of bonds and into stocks. Mortgage rates, in turn, will be pressured to rise. 

That said, we have to keep our perspective; for now it’s only talk. As we saw with the proposed overhaul of the Affordable Care Act, talk can lead to nowhere. Because we’re dealing with talk at this point, we see the current range of mortgage-rate quotes established over the past week holding for the immediate future.  

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