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  • KPB & Co Research

Standard and Poor's released the May value of the S&P CoreLogic Case-Shiller U.S. National Home Price Index, which came out 3.4% higher than that recorded in May-2018. In the previous month, the year-over-year increase in home prices was 3.5%, a slight 0.1 percentage points over the growth rate recorded for the month of May. The home price index increased 0.8% for the month of May 2019 relative to that of the month of April.

The S&P CoreLogic Case-Shiller U.S Home Price Index is running 1.4 percentage points higher than the 12-month inflation target rate of 2%, which is largely positive given the weakness in the US housing market starting in Q3-2018. With the increases in interest rates, and the run-off the US Fed's bond buying program, debt markets tightened and economic growth slowed significantly going in the last quarter of 2018. At the same time, sales of new and existing homes declined. One would expect home price growth to turn negative by now, reflecting slower demand, and weaker buyer sentiment.

S&P CoreLogic Case-Shiller Indices
S&P Dow Jones Indices

Though the housing market usually respond to market forces with a lag, the stability seen could reflect the sudden change in monetary conditions starting in Q1-2019. With economic data turning negative, the US Fed changed tune and began to echo more dovish sentiments. In fact investors are expecting monetary authorities to slash rates together with the other commitments already made to keep the bond buying program active. US Banks are all ready to lend money for the purchase of homes. As such expectations of more liquid monetary conditions could have facilitated more stable housing markets.

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