The Fed stands by as house prices rise, but here’s what could get in the way

It seems appropriate on a day when the Federal Reserve is making an interest rate decision to look at the most rate-sensitive sector, housing. Composed in the three months ending in February, it was amazing. Bespoke Investment Group estimates that the annualized increase over the last eight months for the national index was 15.3%, a period stronger than even the subprime boom or, indeed, any period in the series that is It dates back to the mid-1980s.

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“This level of price appreciation is not sustainable in the long term, but the combination of demographics, interest rates and short-term demand changes triggered by COVID have led to an absolutely terrifying spike in prices that even surpasses the peak of the sub-prime mortgage bubble. ”Said George Pearkes, an analyst at Bespoke. Even in Cleveland, which missed the 2005 boom, prices were up 12.5%. Housing website Zillow Z, -1.56% forecasts March data for the 20-city composite to be even stronger, with prices rising 12.7%. The most popular product is LB00 lumber, -0.11%, and lead random length contract prices are up 62% this year and 347% over the last 52 weeks. Logically, the price increases are affecting sales. Bank of America BAC, + 1.19%, JPMorgan Chase JPM, + 0.46% and Wells Fargo WFC, + 2.15% each reported a decline in mortgage activity in the first quarter, and the rate of existing home sales in March fell by 11% from October. top. Low inventory seems to be the key: there is not an adequate supply to satisfy the interest of urban dwellers to move to a more spacious environment. For publicly traded homebuilders, who have been reluctant since the 2008-09 financial crisis to build more homes, it appears to remain a good backdrop. The SPDR S&P Home Builders XHB ETF + 0.94% is up 32% this year and more than doubled, 122%, in the last 52 weeks. The Fed has certainly shown no signs of wanting to get in the way, focusing instead on a job market that is still some 8 million positions below pre-COVID levels. The central bank is months away from even signaling a reduction in bond purchases, and probably years away from an increase in interest rates. Ironically, if there is one thing that could alter the trend, it could be the reopening of the economy. “With remote work giving way to at least a partial return to the office this summer, the housing market is changing, but we expect overall demand to remain strong, consistent with GDP well above trend. [gross domestic product] growth for the rest of this year, ”said Robert Dye, Comerica Bank chief economist. Lewis Alexander, Nomura’s US chief economist, echoed that view. “It will be interesting to see how the demand for housing evolves in the coming months as more people are vaccinated. The vaccine launch and economic reopening could prompt more people to return to metropolitan areas and rent apartments. Alternatively, housing markets may be undergoing more secular shifts, leading to a permanent shift in demand for single-family homes in suburban areas, ”he says. Big Tech Gains Official confirmation that the Fed will do nothing comes at 2 pm ET, followed by a press conference with President Jerome Powell at 2:30 pm Google owner Alphabet GOOGL, -0, 82% GOOG, -0.84% ​​beat earnings estimates along with $ 50 billion share buyback announcement. Tech giant Microsoft MSFT, + 0.16%, also beat earnings estimates, but investors reacted a bit negatively to the results. Device maker Apple AAPL, -0.24% and social networking service Facebook FB, + 0.17% report their results after close of business. In addition to tech megacaps, payment processing giant Visa V, -0.19% also beat earnings and revenue expectations. So did social media service Pinterest PINS, + 1.11%, but investors were wary of the online bulletin board company’s warning that user growth began to slow as coronavirus restrictions eased. That’s still not a problem for microchip maker Advanced Micro Devices AMD, -0.23%, as it also beat earnings expectations and signaled a strong current quarter due to growing demand. The weaker-than-expected results from China weighed on Starbucks coffee chain’s SBUX sales, + 0.20%, which was also a problem for restaurant owner Yum China YUMC, -0.03%. Psychedelic drug maker MindMed, which has no revenue, will go public on Nasdaq on Wednesday. President Joe Biden will present his American Family Plan in a joint session of Congress, which will include an estimated $ 1.8 trillion social spending, to be paid for with $ 1.5 trillion in taxes, including an increase in capital gains tax and capital gains. imposition of capital gains tax upon death for high-income individuals. 10-year returns on the move The most interesting movement in the markets over the last two days has been the bond market. With an increase of 5 basis points on Tuesday, the yield on the 10-year Treasury BX: TMUBMUSD10Y rose to 1.65%. US stock futures ES00, + 0.09% NQ00, -0.12% languished, after a day when the S&P 500 SPX, -0.02% rose to its new record. Random reads Former British Prime Minister Tony Blair makes comparisons to Doc Brown in “Back to the Future” with his new look. It turns out that Spock’s character in “Star Trek” was bad at logic, describing events that happened as “impossible” 83% of the time. Need to Know starts early and updates until the opening bell, but sign up here to receive it once in your email box. The e-mailed version will ship at approximately 7:30 am ET. Do you want more for the next day? Sign up for The Barron’s Daily, a morning investor briefing, featuring exclusive commentary from the Barron’s and MarketWatch writers.