The Week in Review: Stocks Rally as Home Price Growth Accelerates, U.S. Unemployment Claims Fall

U.S. stocks recovered from last week’s slump as strong home price and unemployment data combined with solid corporate earnings to encourage equity investors to re-enter the market.

U.S. stocks recovered from last week’s slump as strong home price and unemployment data combined with solid corporate earnings to encourage equity investors to re-enter the market.

Home price growth accelerated in August throughout the United States, with the strongest price gains in the mountain region as prices declined in New England and the South Atlantic. Nationwide, home prices rose 0.5% month-over-month in August, an acceleration from July’s growth rate of 0.2%. On a year-over-year basis, home prices rose 4.8% in August, according to a new report from the Federal Housing Finance Agency.

Despite the rise in home values, American homes remain 5.8% below their peak in 2007. However, homes have also risen about 20% since their lowest point in late 2010, with most of the gains occurring in 2013 and 2014.

Home Buying Activity Remains Muted

Improving home prices is a sign of a recovering real estate market, but home buying activity remains lackluster as renting continues to gain in popularity.

In a study by the National Association of Realtors, total existing home sales rose 2.4% on a seasonally adjusted basis in September, which indicates moderate improvement in demand. The NAR also said home prices rose 5.6% in September on a year-over-year basis. The median existing home price in the U.S. is currently $209,700.

Analysts have expected a slowdown in home price growth, but appreciation is still expected for the rest of 2014 as mortgage rates fall, which could spur more real estate demand. However, some economists warn that the growth of at-will employment contracts, greater job insecurity, and growing distrust of property appreciation potential has led many Americans to choose to rent instead of buying their own home.

At the moment, the lower prices are encouraging more refinancing than new home sales transactions. In a separate study, the Mortgage Bankers Association saw refinancing activity rise 23% from the prior week, reaching the highest level since November 2013. U.S. home loans have fallen below 4% in some parts of the country, encouraging more mortgage refinancing activity across the country.

Unemployment Claims Sink

Greater economic optimism was bolstered by lower unemployment claims on Thursday, when the Department of Labor reported again unemployment claims at their lowest point since 2000. Weekly initial unemployment claims for the week ending October 18th fell to 283,000, slightly below expectations of 285,000. This suggests that less people are getting laid off, which could indicate greater demand for goods and services are keeping Americans employed.

The report showed that the 4-week moving average of weekly claims fell to 281,000, their lowest point since May 2000 and down 1% from the prior week’s level.

Despite improvements in the unemployment rate, economists remain conservative in their forward growth estimates due to demographic pressures in the United States. Forward expectations for inflation have remained constrained as the Bureau of Labor Statistics announced a 1.7% increase to Social Security benefits on weak growth in the Consumer Price Index (CPI).