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Market Update: February 22, 2016

A batch of housing data due this week which the Federal Reserve will be keeping a close eye on, looking for signs the economy is healthy enough to continue raising interest rates.  It's also thought by many to be the unofficial start of the all-important spring home-selling season.

The Fed Looks Right On Inflation:

The first part of 2016 has been dominated by discussion about whether the Federal Reserve's decision to raise rates in December was a mistake, or in Fed speak a "policy error." But the latest data on inflation received last week makes clear that while financial markets may have growing concerns about the ability for central banks to deal with future economic shocks, the US economy continues to progress towards the Fed's goals. In January, "core" inflation rose 2.2%, the fastest rate in four years. On a month-on-month basis, this measure's 0.3% increase was the largest since 2006.

And with the US labor market exhibiting signs of being at full employment - rising wages, rising quits - progress towards the Fed's 2% inflation goal should be the primary focus of discussions about what the Fed will do next. This past week's release of the minutes from the Fed's January 26-27 meeting revealed a focus on financial market developments and the impact volatility in these markets could have on the US economy. But it is worth keeping in mind that Fed Chair Janet Yellen is not trying to trick the markets when she says - as she did in testimony on Capitol Hill earlier this month - that policy is not a pre-set course. It will depend on the data, and with about four weeks left until the Fed's March meeting, which markets have long since crossed off as a possible date for another interest rate hike, the data bears very close watching.

This Week's Economic Calendar:

Case-Shiller Home Price Index and the all-important existing home sales for January are due out tomorrow and as important last month's new home sales are out on Wednesday.

The Case-Shiller Home Price Index, which gauges home prices in a number of the largest cities, is expected to show an increasing appreciation in prices across the U.S.  The December report, compared to the prior month, is set to show a 0.9% increase in home prices with prices rising 5.8% over the prior year.

Existing Home Sales: The January report is expected to show a 2.2% month-on-month decline after December's 14.7% increase, which marked the largest-ever monthly increase for the series.

New Home Sales: The January report on new home sales is set to show a 4.4% decline after December's massive 10.8% increase. Still, 2015 marked the strongest year for new home sales since 2007.

FHFA Home Price Index: Thursday's December reading on home prices from the Federal Housing Finance Authority is expected to show a 0.5% increase in prices over the prior month.  This would market the 3rd straight month home prices increased 0.5%.

Also out on Thursday are Jobless Claims and Durable Goods Orders. On Friday, look for the 4th quarter GDP report on personal income and outlays -- a key gauge of consumer sentiment and spending.

Author: Kirsten Hamling