US eco­nomic out­look for 2017 bright­ens

Kuwait Times - - BUSI­NESS -

New US sin­gle-fam­ily home sales rose more than ex­pected in Novem­ber and con­sumer sen­ti­ment hov­ered near a 13year high this month, strength­en­ing the view that the econ­omy will gain fur­ther mo­men­tum next year. Pres­i­dent-elect Don­ald Trump’s plan to cut taxes and in­crease in­fra­struc­ture spend­ing is ex­pected to boost eco­nomic growth, though it al­ready has sparked a surge in mort­gage rates that could hurt the hous­ing mar­ket in the long term.

“Home buy­ers are con­fi­dent in their fu­tures and this means the out­look is likely to be brighter next year than we thought,” said Chris Rup­key, chief econ­o­mist at MUFG Union Bank in New York.

The Com­merce De­part­ment on Fri­day said new home sales in­creased 5.2 per­cent to a sea­son­ally ad­justed an­nual rate of 592,000 units last month. That was the sec­ond high­est pace since 2007. Econ­o­mists had fore­cast sin­gle­fam­ily home sales, which ac­count for about 9.5 per­cent of over­all home sales, ris­ing 2.1 per­cent to a 575,000-unit rate last month.

Sales rose 16.5 per­cent from a year ago, boosted by a 43.8 per­cent jump in the Mid­west to a nine-year high. Sales surged 7.7 per­cent in the West, their high­est level since Jan­uary 2008, but fell 3.1 per­cent in the South. They were un­changed in the North­east. Separately, the Univer­sity of Michi­gan said its con­sumer sen­ti­ment in­dex edged up to a read­ing of 98.2 from 98 ear­lier this month. That was the high­est read­ing since Jan­uary 2004.

The Univer­sity of Michi­gan said a record 18 per­cent of re­spon­dents “spon­ta­neously men­tioned the ex­pected fa­vor­able im­pact of Trump’s poli­cies on the econ­omy.” Con­sumers an­tic­i­pated that a stronger econ­omy would cre­ate more jobs, with the share ex­pect­ing higher in­come ris­ing to a one-year high. “Greater in­come growth prospects for con­sumers serves as a good lead­ing in­di­ca­tor of real spend­ing ac­tiv­ity,” said Michael Brown, an econ­o­mist at Wells Fargo in Char­lotte, North Carolina.

US fi­nan­cial mar­kets were lit­tle moved by the up­beat data in light pre-hol­i­day trad­ing. The US dol­lar was steady against a bas­ket of cur­ren­cies, while prices of US Trea­suries rose. Stocks on Wall Street were lit­tle changed.

RIS­ING MORT­GAGE RATES

While Trump’s en­vis­aged poli­cies have boosted con­fi­dence among house­holds and busi­nesses, his agenda to in­crease spend­ing is ex­pected to stoke in­fla­tion. Mort­gage rates have risen rapidly since the busi­ness mogul’s Nov 8 elec­tion vic­tory. The in­ter­est rate on a fixed 30-year mort­gage has in­creased more than 70 ba­sis points to an av­er­age of 4.30 per­cent, the high­est level since April 2014, ac­cord­ing to data from mort­gage fi­nance firm Fred­die Mac.

Mort­gage rates are likely to rise fur­ther af­ter the Fed­eral Re­serve raised its bench­mark overnight in­ter­est rate last week by 25 ba­sis points to a range of 0.50 per­cent to 0.75 per­cent. The US cen­tral bank fore­cast three rate hikes for next year. Higher mort­gage rates in the near term could boost home sales by lur­ing in buy­ers who fear fur­ther in­creases in bor­row­ing costs. A re­port on Wed­nes­day showed sales of pre­vi­ously owned homes rose to near a 10-year high in Novem­ber.

“We have yet to see any clear signs in the hous­ing data re­ported to date that higher rates have de­pressed ac­tiv­ity,” said Daniel Sil­ver, an econ­o­mist at JPMor­gan in New York. “That said, we think that at some point higher rates will weigh at least some­what on the hous­ing mar­ket.”

Higher bor­row­ing costs come at a time when house price in­creases are out­strip­ping wage gains, which could make pur­chases un­af­ford­able for many first-time buy­ers. De­spite the rise in sales last month, the in­ven­tory of new homes on the mar­ket in­creased 1.6 per­cent to 250,000 units, the high­est level since Septem­ber 2009. Still, the sup­ply of new houses for sale re­mains about half of what it was at the peak of the hous­ing mar­ket boom.

The in­ven­tory rise, if sus­tained, could slow the pace of house price in­creases. At Novem­ber’s sales pace it would take 5.1 months to clear the sup­ply of houses on the mar­ket, down from 5.2 months in Oc­to­ber. A six-month sup­ply is viewed as a healthy bal­ance be­tween sup­ply and de­mand. —Reuters

WASH­ING­TON: Pres­i­dent Barack Obama steps off the stage af­ter ad­dress­ing busi­ness lead­ers about the econ­omy in the East Room of the White House in Wash­ing­ton. —AP

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