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Housing struggling to maintain a firm footing

The most recent housing data portrays an industry that continues to make progress but at a slow, inconsistent pace. Existing home sales rose 1.1 percent to the highest pace since 2007 and are up 1.9 percent from a year ago. Despite the encouraging report, industry analysts fear we may be reaching the peak level of activity for the year. Foot traffic is beginning to slow down amid low inventory and higher prices. The supply of available properties fell 5.8 percent from a year ago and now stands at a 4.6-month supply. Anything under five months is considered a tight market. The median price of a home rose 4.8 percent from a year ago. Rising prices are great if you own a home, but make it difficult for many people trying to buy a home. A growing disparity remains in price appreciation of home types: the value of lower-end homes priced under $100,000 fell nine percent, while homes near the $1 million price tag increased 13 percent. First-time home buyers accounted for 33 percent of activity, up from 30 percent in May and the highest percent in four years.

New home construction increased 4.8 percent in June, much stronger than expected. The activity for May was revised lower to -1.7 percent from -0.3 percent. Construction of single-family homes rose 4.4 percent, the fastest pace since February. Multi-family housing activity outpaced single-family, rising 5.8 percent. The resumption of activity in multi-family housing will only exacerbate the lack of single-family housing inventory. The heaviest overall construction activity was in the Midwest and West, both with double-digit growth. Homebuilders are reluctant to ramp up construction ahead of solid demand. They do not want to be caught with extra inventory in case the economy and buying appetite take a sudden turn for the worst.

Other Key Indicators this Week:

Leading Economic Indicators – The Conference Board’s index of leading economic indicators rose 0.3 percent in June to 123.7. The gain reverses a decline of 0.2 percent in May. Primary drivers of the increase included improvements in unemployment claims, building permits and financial indicators. The six-month annualized rate rose to 0.6 percent. The index findings suggest economic growth could be subdued through 2016 but resilient enough to withstand volatility in the financial markets and a moderate outlook in the labor market.

ECB – The European Central Bank (ECB) kept interest rates the same at this week’s meeting. This was the first meeting after Britain passed a referendum, in June, to leave the European Union. The decision was expected, and it better positions the ECB to reassess the effects of Brexit in the coming months. The ECB expects interest rates to remain low for an extended period. ECB President Mario Draghi said the ECB will use all available instruments to meet their mandate.

Strategically for Credit Unions:

Recent economic data has been positive enough to shift expectations for the next rate move from late 2017 to early 2017. The fed funds future market is forecasting a 53 percent chance for a rate increase as soon as March 2017. Just two weeks ago, the forecast was a 43 percent chance of postponement until December 2017. The Federal Reserve Open Market Committee (FOMC) meets next week. Economists and market watchers fully expect the FOMC to leave policy and rates unchanged this month. Speculation is growing that the FOMC could make a move by year end, but most odds are being placed against this action. The shock of Brexit has worn off, but a lot of uncertainty still surrounds Brexit, the presidential election, employment conditions and the lack of inflation to make the FOMC comfortable with increasing interest rates at this time.

Sarina Freedland – Senior Investment Officer

Although this information has been obtained from sources we believe to be reliable, we do not guarantee its accuracy, and it may be incomplete or condensed. This is for informational purposes only and is not intended as an offer or solicitation with respect to the purchase or sale of any security. All herein listed securities are subject to availability and change in price. Past performance is not indicative of future results. Changes in any assumption may have a material effect on projected results.

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