According to the National Association of Realtors, homebuyers moved off the sidelines at the fastest pace in eight years last month as an impending interest rate hike by the Fed created urgency. A bevy of recent economic indicators, including healthy employment growth, low unemployment, and historically low jobless claims point towards an interest rate hike in September. Although some headwinds persist, such as low wage growth, turmoil in the international markets, and below-target inflation, the influence of these challenges on the FOMC’s launch date for lifting the baseline rate is abating. The Fed is anticipated to lift rates as much as 50 basis points this year and between 100 and 150 basis points in 2016.
In June, a seasonally adjusted 5.49 million homes sold across the country, significantly outpacing the consensus forecast and the highest level since February of 2007. Potentially more notable than the pace of sales was the price of an existing single-family home last month, which reached an all-time high. At $236,400, the median price eclipsed the pre-bubble peak of $230,400 for the first time according to data from the NAR. The median price during June was 6.5 percent above the same month one year ago.
While the June existing-home sales report was overwhelmingly positive, the percentage of first-time homebuyers slipped to 30 percent during the month, down from 32 percent in May. The long-term trend, which is considered a benchmark for a healthy housing market, pegs first-time buyer activity closer to 40 percent. Rising interest rates, significant student-loan debt and high prices will limit an increase in this segment. As a result, the jump in home sales is likely a temporary impact of fence sitters committing to purchases, and slack in the market could re-emerge towards the end of this year.
Jobless claims fell to 255,000 during the week ending July 18, the lowest level in more than 41 years. Although the seasonal adjustment can be challenging during the summer months as automakers shut down factories to retool, the low level of claims are indicative of strong job growth projected for July. Unemployment, which already stands 5.3 percent, could slip into the full-employment range of 5.0 to 5.2 percent with another strong month of payroll gains, putting long-awaited upward pressure on wages.