New Home Sales and Housing Starts posted high marks recently, and homebuilder sentiment was positive too.

The Commerce Department reported that sales of new homes in February hit a seven-month high, rising 6.1 percent from January. Sales also were 12.8 percent above February 2016. Housing Starts rose 3 percent from January to February and 6.2 percent from a year prior. Starts on single-family homes rose to a near 10-year high.

Homebuilders are feeling good about the market, the National Association of Home Builders reported. The Housing Market Index, a measure of homebuilder sentiment, jumped six points to the highest level in 12 years!

After starting 2017 at the fastest pace in almost a decade, Existing Home Sales slid 3.7 percent in February according to the National Association of REALTORS®. Total existing housing inventory for sale at the end of February increased from January; however, inventory was 6.4 percent lower than a year ago.

Economic Conditioning

The Fed raised its benchmark Federal Funds Rate 0.25 percent in March as expected. This is the rate at which banks lend money to each other overnight and it is not directly tied to home loan rates. Economic growth, maximum employment and price stability are key factors the Fed weighs in its decisions.

To that end, Gross Domestic Product (GDP), which measures the health of the economy, rose an anemic 1.6 percent for all of 2016, the worst since 2011 and below the 2.6 percent in 2015. On the employment front, job growth in March disappointed, with only 98,000 new jobs added, well below the 180,000 expected. However, the unemployment rate hit a 10-year low.

Inflation, as measured by the Core Personal Consumption Expenditures, was unchanged in February from January and remains just below the Fed’s target range of 2 percent on a year-over-year basis. Inflation is an important measure because rising inflation reduces the value of fixed investments like Bonds. Since home loan rates are tied to Mortgage Bonds, home loan rates can improve when Mortgage Bond prices improve. The opposite is also true.

The good news is that home loan rates remain historically attractive for those in the market to buy a home. Stay tuned for your next quarterly update in July.

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