Good News for U.S. Economy, Despite Volatile Stock Market

REAL ESTATE TOPICS

: By Jonathan Smoke

The first full week of the month is typically light on new economic and housing data. This week was no exception, but it came against the backdrop of severe volatility in the stock market.

Multiple days of declines in stock indices can rattle confidence, but the stock market itself doesn’t always react to economic data in a straightforward fashion.

Sometimes good economic news can be bad news for stocks. This seems to be one of those times.

Concerns Over Global Economic Weakness, U.S. Interest Rates

Two issues stand out as the primary concerns shaking the financial markets.

The first is global economic weakness. This will impact our economy through weaker exports, so the issue could certainly be negative for the economy, stocks and housing altogether.

However, the U.S. economy is doing better on industrial production, employment and consumer spending. The improving conditions at home more than offset the global weakness in terms of local jobs.

But that improvement is driving discussion about the second key concern: when the Federal Reserve might increase the Federal Funds Rate.

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The interest rate worry has more of a negative impact on stock valuations than on housing—for the short term, at least. If interest rates rise gradually because of strong economic growth, housing will continue to recover.

Historically, single-family home sales increase on average when interest rates rise only moderately.

Good Signs for U.S. Economy Overall

The U.S. economic news this week has been positive: record numbers of job openings, sustained declines in jobless claims and gains in weekly mortgage purchase applications.

Ironically, while the stock market frets about what the Fed is going to do with rates, actual fixed mortgage rates fell slightly this week.

This won’t last long. As positive economic and employment data continue to be reported this fall, we will start to see mortgage rates moving up.

But as long as the move up is gradual, home sales will likely go up.