Existing Home Sales Drop; Projected Fed Rate Hikes

Economic news last week included a surprise drop in existing home sales.  It continues to appear that the Fed is poised to raise interest rates going forward.  Furthermore, FINRA is reporting that margin debt balances are at record highs.

• Higher supply and lower prices saw existing home sales unexpectedly fall last month. The actual result of 5.38 million missed the consensus projected 5.56 million, making the rate the lowest for January since 1999. The year-over-year home resales rate decreased 4.8%, the largest decline since August 2014. Two of the four regions, Midwest and West, saw declining home sales of 6.0% and 5.0% from December, respectively.
  

Existing home sales record the number of previously constructed homes, condominiums, and co-ops sold during the month. Existing homes or resales account for a much larger share of market than newly constructed homes. Additionally, existing homes rates are considered a better indicator of the overall housing market trends. 
 

• Last week, the Federal Reserve rate setting committee released its last meetings' notes. In summary, the positive economic news and reports as of late are likely to lead to increased interest rates (i.e. the federal funds rate as well as an increase in natural inflation). The meeting notes demonstrate an upgrade in member forecasts since December, including a possible boost from recent tax law changes that established $1.5 trillion in corporate and individual tax cuts.

 

• According to data from the Financial Industry Regulatory Authority (FINRA), margin-debt balances — loans individual investors take from their brokers in hopes of sizing up their portfolios and maximizing potential returns — rose to a record $665.72 billion in January. During most of 2017, investors averaged margin balances of just under $600 billion and finally surpassed the $600 billion mark late last year. This past month, FINRA issued an alert warning that many investors appear to be underestimating the serious risks of trading on margin, whereby an investor uses part or all of his or her portfolio as collateral.