US Consumer Confidence High. Home Prices Gain

This December the American consumer confidence has been recorded on its highest level in more than 15 years. Following the election of Donald Trump as president in November, the US consumers saw more strength ahead in business conditions, stock prices and the job market, reports Reuters.

House prices have also continued their steady recovery in October, although a spike in borrowing costs after would could present a headwind to sustained home value gains.

The Conference Board‘s Consumer Confidence Index rose to 113.7 in December from an upwardly revised 109.4 in November, 2016 and was the highest since August 2001.

“The confidence boost was entirely due to rising expectations as consumers’ assessments of current conditions dipped, and was led by surging optimism among older Americans”, said Lynn Franco, director of economic indicators at The Conference Board, quoted by Reuters. According to him the modest pullback in current conditions “still suggests that economic growth continued through the final months of 2016. “Looking ahead to 2017, consumers’ continued optimism will depend on whether or not their expectations are realized”, added Mrs. Franco.

Benchmark U.S. stock indexes have surged to record highs. The S&P 500 .SPX has gained more than 6%  since U.S. Presidential Election Day, while the blue chip Dow Jones Industrial Average .DJI risen by nearly 9% to near the 20,000 mark. Small cap stocks outpaced both, with the Russell 2000 gaining 15% in the same run. All 3 indexes were up modestly on Tuesday in light, post-Christmas holiday trading.

Increase in Interest Rates

Interest rates have also risen on expectations for accelerated growth and inflation as well as on expectation that the Federal Reserve will ratchet up the pace of hikes to its benchmark overnight lending rate. The Fed has already raised that rate for the first time in 2016 by a 0.25% to 0.75%. Experts project two more increases in 2017.

30-year Fixed-rate Mortgage Highest Since May 2014

The average rate on a 30-year fixed-rate mortgage has hit its highest since May 2014, potentially posing a risk to the U.S. housing price recovery. The S&P CoreLogic Case-Shiller composite index of 20 metropolitan areas rose 5.1% in October 2016 on a year-over-year basis, up from a downwardly adjusted 5.0 percent climb in September and matching the estimate of a 5.1% gain from a Reuters poll of economists.

According to David M. Blitzer, managing director and chairman of the index committee at S&P Dow Jones Indices “Home prices and the economy are both enjoying robust numbers”. He also said that mortgage interest rates rose in November and are expected to rise further as home prices continue to out-pace gains in wages and personal income. Mr. Blitzer added that with the current high consumer confidence numbers and low unemployment rate, affordability trends do not suggest an immediate reversal in home price trends. His projection is that home prices cannot rise faster than incomes and inflation indefinitely.

Prices in the 20 cities rose 0.6% in October 2016 from a revised 0.5% in September on a seasonally adjusted basis, the survey showed, outpacing expectations for a 0.5 percent increase. On a non-seasonally adjusted basis, prices increased 0.1% from September 2016.

The biggest year-over-year gains have been recorded in the West and Texas, including gains of more than 10% in the Seattle and Portland areas. Prices in the Denver and Dallas markets have increased by more than 8% from a year earlier. The smallest annual gain is in the New York metro area, where prices rose just 1.7%

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