Reports Commentary

Housing

Friday marked the end of the month and of the quarter, in addition, of course, to the week a week that, itself, was marked by several finales and prospective bookends. The housing recovery continues to pick up steam, as home prices jumped in April, and new home sales hit a five year high in May. But a recent increase in mortgage rates could soon put the brakes on housing.

The S&P/Case-Shiller home price index was up 12.1% in April, compared to a year ago, in the 20 top real estate markets across the nation. That was the biggest annual jump in prices in seven years. Prices climbed 2.5% from March, posting the biggest one-month rise in the 12-year history of the index.

New homes sold at an annual pace of 476,000 in May, according to a separate government report. That's the best reading since July 2008, just before the global financial meltdown slashed homebuyers' access to credit. The pace of sales was up 2.1% from April, and up 29% from a year ago.

Mortgage Rates

But the 30-year mortgage rate has risen to nearly 4%, up from 3.35% at the start of May. While that is still low by historical standards, it's trimmed about $12,000 off of an average buyer's purchasing power. Mortgage rates began to climb in May, after April's sharp jump in home prices was recorded.

Home value appreciation in some of these areas will have to slow down, or potentially fall, as higher prices are no longer masked by rock-bottom mortgage rates.

Indeed, the rapid rise in home prices that's fueling the housing recovery could actually help derail it, as it makes purchases more difficult for potential buyers. Even the National Association of Realtors warned last week that "home price growth is too fast," and said that the market needs significantly more home building and better access to credit for buyers.

GDP

The weaker figures came primarily from revisions to consumer spending, exports and commercial real estate.

Consumer spending, which alone accounts for roughly two-thirds of the GDP measure, rose at a 2.6% annualized pace in the first quarter, according to the revisions. That's down from the 3.4% pace the Commerce Department estimated in its prior report.
Meanwhile, spending on nonresidential buildings shrunk 8.3% in the first quarter, offsetting some of the economic boost from the ongoing housing recovery.

U.S. exports to other countries contracted, and government spending cuts continued to be the largest drag on economic growth.

Economists have already turned their attention to studying how the economy fared in the spring. Their estimates point to more of the same slow growth.

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